There seems to be a growing trend among certain lenders to focus their business on higher volume brokers. If a broker doesn’t send a lender enough deals, for example, that broker may get poorer rates, worse service, or no service at all (i.e. the lender doesn’t accept their business).
Lenders feel they have legitimate reasons for these policies, and in some cases they might. Nevertheless, it goes without question that it creates the potential for ethical dilemmas.
If brokers are motivated to send their volume to fewer and fewer lenders to achieve “status,” the odds increase that clients will be put into products that aren’t in their best interests.
Suppose a broker needs one more deal to hit their status for the month with lender A. Lender A offers a suitable product for the broker’s client at a 5.50% interest rate.
All other things being equal, suppose lender B offers a similar product at 5.30%, but gives no status.
Should there even be a question where that broker sends the deal? Probably not.
When choosing the best product, our fiduciary duty as mortgage planners should be to the client. For this reason, the trend above is worrisome.
Keep in mind, this is an admittedly cursory view, and is only one opinion. There are literally thousands of right-minded mortgage planners for whom this would never even be question.
If you’re a broker or lender, we’d love to hear your comments.
If you’re a borrower, don’t be afraid to ask your mortgage broker their policy on the above.
Although this situation does present a dilemma for some planners; it reflects the prevailing attitude at the financial institutions that in order to control risk they need to start policing the business coming in the door and take a little more diligence in who they choose to do business with. In the long run this will put some planners out of business, but this is good for the industry in my view. It will make the smaller producers less able to compete and concentrate business in those planners that can maintain “status” with all lenders. The lists will generally be updated quarterly and the thresholds in general are low; and should not be too difficult to obtain for most planners.
Another possibility is that brokers band together to send deals under one brokers name. Resourceful people will always try to beat the system. IMO it is pathetic that we have to play this game.
Interesting article.
It is not a shock that lender minimums and incentives are designed to drive their revenue and minimize costs. It IS a surprise that FSCO allows these conflicts of interest to exist. We are fortunate to have status with various lenders and this does not influence our decisions. Not everyone shares the same conscience however.
Mortgage Portablity Info if moving from a $412 property (with $316 5 YR Variable Rate Mortage) to a $345 property. What are the rules required to qualify for portability?
(Income, Loan to Value Ratio, Credit Rating,etc.)
Thanks,
Catherine
Hi Catherine,
It depends on the lender. In most cases it requires a new application process. The best bet if you’re porting is to ask your lender the specifics.
IMO lender status programs lead to clients being sold mortgages they shouldn’t.
For example–one of the bigger lenders requires $30,000,000 in volume to reach good status and $75,000,000 to reach best status. I just can’t see how brokers qualifying for those levels have their clients best interests in mind. From what I can tell this lender does not have good enough rates and products to justify sending that much business there.
There are probably other lenders that would better serve the client. Brokers keep sending this one lender business nonetheless, just to keep their status. It is definitely something regulators need to review.