RECA Study Sheds Light On Consumer Views

RECA The Real Estate Council of Alberta (RECA) released a study this month about how consumers perceive mortgage brokers.

Among other things, it noted that:

  • “Consumer understanding of compensation and relationships in the mortgage brokerage industry varies considerably.”
  • With brokers, respondents felt “they were receiving elevated customer service and obtaining better mortgage rates and terms than they would obtain independently.”
  • “It was not so much the rate as the overall terms and conditions of the mortgage that is of key importance.”
  • “Consumers have little concern for how a broker gets paid as long as it is not by them. Most consumers are aware that the lender pays commission.”

With respect to that last point, regulators deserve credit for bringing compensation into the open through disclosure forms and other rules.  As with any advice-business, potential conflicts do exist in a minority of cases and consumers need to know about them.

In sum, RECA’s research was a very positive reflection on our industry.  Mortgage practitioners can take pride in the value they add and the degree to which professional mortgage planning has evolved.

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About RECA: Established in 1996, RECA regulates mortgage brokers and real estate professionals throughout the province of Alberta. Its mandate is to protect consumers, enforce Alberta’s Real Estate Act, and promote professionalism and integrity in the industry.

  1. On that train of thought, can you approach a lender directly without a broker and ask for a kickback in rate since they won’t need to pay the broker commission? Similar to what you can do as a buyer with an owner if you skip the buying/listing agents?
    Maybe if we cut out these middlemen then real estate would actually be cheaper and affordable in the area. Why do so many people want a piece of the pie?

  2. Brokers perform value-added services to both the lender and client. They do things that the lender would otherwise have to pay for itself like pre-qualifying customers, advising clients, taking applications, collecting paperwork, managing the closing process, and most importantly, customer acquisition. That is why brokers are so pivotal to the process. Without them, we would not have the transparency and rate competition homeowners enjoy today.

  3. Good advice always sells for a premium. Consumers in the mortgage market are very fortunate that the guidance they receive from mortgage advisors comes free of charge, courtesy of their lender.

  4. Ray; back when I was a lender, I had to pay someone to do the mortgage. Either a staff person or a mortgage broker, but the file doesn’t get the required documentation all by itself. And I had to pay for a staff person’s benefits, Stat Holidays, etc.

  5. “As with any advice-business, potential conflicts do exist in a minority of cases and consumers need to know about them.”
    A potential conflict of interest exists in virtually every brokered transaction where the bank pays the fee and the borrower is being given advice. Whether or not the client’s interests are directly harmed or not depends on the ethics of the mortgage broker and whether or not the broker is being directly incentivized by differential bonuses to favor one lender over another, regardless of the terms, conditions or rates.
    Brokers who are preferred brokers and receive higher bonuses because they send the vast majority of their business to one or two lenders may be guilty of abuse of their inherant conflict of interest because they are fettering their discretion to receive an enhanced benefit (increased bonuses).
    Because the difference between bank lenders on insured mortgages are relatively minor there is little evidence to suggest that clients are being harmed by the current system, but brokers should be more careful about disclosing whether or not they send the majority of their business to one lender or another, rather than simply that they receive a commission from the lender.
    In the subprime and alt business products vary greatly, as do commission and bonus arrangements, and there is a higher likelihood of an abuse by a broker acting unethically, simply because the reward for doing so is much higher financially.
    Ethical brokers always seek the best terms, rates and conditions from lenders for their clients, regardless of the commissions paid, and Accredited Mortgage Professionals make a specific commitment that they will do so.
    Consumer should not be confused into thinking that brokers are “shopping” their mortgage to numerous lendes to obtain the best rate. We don’t. What we do is determine from our experience and current awareness of rates the lender that is most likely to provide the best term and conditions for a borrower, and submit the application to them.
    Certainly there is no auction to lenders of loan applications. Lenders wouldn’t tolerate it, and clients whouldn’t like the amount of time it might take with little or no benefit achieve thereof.

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