Practical Education

Practical-Mortgage-Training A commenter wrote yesterday about how easy it is to get into the mortgage business, suggesting that we’re not a true “profession” given the low barriers to entry.

We don’t like to admit negatives about the industry we love, but the comment rang somewhat true.

Training and practical experience requirements do need to be strengthened in our business. Consumers’ interests are not maximized when:

  • A rookie broker can be licensed and provide mortgage advice in as little as 1-4 months, depending on the province.
  • A bank teller can move from the counter to selling mortgages with a few days of training, some manuals, and no licensing.

You don’t realize how mishandling a mortgage can seriously impact someone’s financial life until you’ve been in the business a year or so and see what can go wrong.

Hopefully, regulators eventually realize the importance of practical education pre-requisites. Experience counts. Many (but not all) new brokers are simply unequipped to advise borrowers on a debt that will cost tens of thousands in interest.  Telltale signs include insufficient knowledge of:

  • Lender policies
  • Product differences
  • Competitors’ products
  • Term selection, etc.

Formal internship requirements and greater practical knowledge testing are just two possible solutions.

Whatever the answer may be, it should apply equally to employees of financial institutions (albeit, the disconnected web of federal and provincial laws don’t make that easy). At the moment, for example, the playing field between bank reps and mortgage brokers is far from even when it comes to licensing and educational requirements.

The benefit of such changes—if implemented—would be a better-advised consumer and a stronger reputation for the industry as a whole.

  1. I think the target is bit off. I do not see anything wrong if a person trying to earn a living within legal means. Present regulation permits that. But the present law is being exploited in another way. Some mortgage brokers/agents are being used as a sales force to sell rates by much larger organizations. All of it needs to be regulated. Again, too much of regulation……

  2. I don’t think it’s a matter of what is legal. I think what they’re saying is that the advice given to home owners must be held to a higher standard.
    I have had experiences where I’ve gone into a bank and felt I know more than the mortgage salesperson. It’s usually some 20-something describing fixed and variable mortgages and sounding like they’re reading from a script.
    I’ve learned to educate myself through sites like this one and talking to different brokers. You almost have to do that unless you want to put all your trust in an intermediary.

  3. You are right Terry. That is why I said that now a days it is sold like a off the shelf commodity. Like all those we buy from big box stores …. a consumer has to be careful. The whole financial landscape has been commoditized. I think that should be the real concern. What is raised in this post is true in all aspect of financial world.

  4. IMO, it’s terribly simplistic to equate low entry barriers with a lack of professionalism, and restricting entry could end up hurting consumers in the long run.
    I would have no issue whatsoever with mortgage brokers/planners creating a new certification that consumers could place their trust in (along the lines of a CMA), but I don’t believe that any one group should have a monopoly on mortgage advice.
    Greater regulation will definitely cost more. Increased costs may be offset by increased benefit, or they may not. After all, despite very strict regulation in certain fields, there are still bad lawyers, bad doctors, bad accountants, etc.
    Consumers need to start taking more responsibility for their decisions. Too many people sign on the dotted line with a poor understanding of their options. Any time you’re financing a purchase of hundreds of thousands of dollars, it would be wise to do some research and talk to a range of people. If you don’t, that’s on you.
    Just my opinion.

  5. The industry does have a designation that consumers can place their trust in – AMP – Accredited Mortgage Professional-through CAAMP. There are set educational requirements to obtain the designation(which are more stringent than some Provinces require) as well as continuing education requirements. I work for a financial institution and all senior mortgage staff and underwriters hold this designation.

  6. Agreed. Canadians need to step up and take responsibility and stop blaming their problems on others. The problem is our government allows and sometimes I think condones this behaviour (through bankruptcies, bailouts, rule forgiveness, etc..)

  7. Hi Al,
    Thanks for the counterpoint. As ctccjane mentions, the AMP designation does exist. The issue is that it only applies to those who’ve been in the business for a few years, not those who are just out of the chute.
    There’s a great number of highly skilled professionals in our business, and most full-time brokers who’ve been in the business for a few years achieve a good level of competency.
    Where the problem exists is with new entrants who haven’t acquired the skills to advise people on such an enormous liability.
    You note the lawyer/doctor/accountant analogy. These fields would not function without stringent regulation. The cost to consumers of letting a lawyer practice without a degree, bar exam, or articling would be enormous. With mortgages, the learning curve and technical knowledge are far less intense, but a comparison can still be made because of the high costs of bad advice.
    We’ve been through the broker licensing process ourselves in different provinces, and can speak to it firsthand. Regulators, especially in BC and ON, do a great job at ensuring new agents have a high-level view of the real estate industry and mortgage law, but the licensing process is absolutely insufficient from a practical knowledge perspective. That’s where (we believe) consumers are underserved.
    While I agree with your point about client responsibility, there’s unfortunately little practical way for homeowners to judge a new mortgage agent’s competency.
    Cheers,
    Rob

  8. Thanks Rob – I guess the question would then be that, given the general benefits that accrue to consumers as a result of greater competition, and the general desire of governments to lower entry barriers wherever appropriate, is the magnitude of the problem with the mortgage industry big enough to justify additional costs of regulation?
    I honestly don’t know – those working in the industry would have a much better idea. Just wanted to point out that more regulation would almost certainly result in greater costs to new entrants and consumers.
    I suppose doctors were a bad example, but paralegals provide legal advice, and book keepers provide accounting services. IMO, it’s the consumer’s job to assess the level of service he/she needs.

  9. Interesting post–it’s good to know that our young “professionals” looking at their career options can become mortgage brokers faster than it takes to become a certified esthetician! (oops, ahem, Cosmetologist).
    Now I have a better sense of why our local 19 year-old mortgage broker came to our house and tried to sell us a mortgage by flashing her panties while explaining (I use the term loosely, no pun intended) amortization (I almost took the mortgage).

  10. Remember, just two years ago I could rent a Bus to pick up all of the people pouring out of the Toronto Fred Victor Mission in the morning, pay $250 to register each with FSCO and then have them legally dealing in mortgages… We have come a long way since then and believe me, we still have a way to go; but we ARE going in the right direction!
    Now Don’t get me started on how having an AMP demonstrates to the Public that you are a professional… We need to work a lot harder in this department as well as continuing education!

  11. Here in the old-house, like in the mortgage industry, it’s all about class. The comment was tongue-in-cheek, but my original point still stands…on what basis are you a “professional” (the term is so watered down as to be meaningless, but assuming we mean it in the traditional sense) if the barriers to enter your profession are so low?

  12. I would agree that an industry standard would not hurt for licensing or regulating the mortgage industry as a whole. Training and upgrading should be a necessity and a requirement.
    However, I think that both sides would have to give – both Big Banks as well as Broker channels to meet commonality.
    Right now there are 2 sets of rules in place, and would either side want to concede?

  13. I remember being the “newbie” in the industry. I would agree fully that more “on the job” training or mentoring is required. First 1 year in…there are deals that I would NEVER have recommended today with the knowledge I had back in my newbie days. There are also alot of brokers that are doing 4 deals a year that I know didn’t give either solid advise or good programs too. I just this week did two deals that another broker couldn’t get done. Experience, knowledge and client service is what makes us good brokers the BEST.
    It would be nice if MBABC or CAAMP had a min requirement of X (ie: 5million) in volume per year before your certified as a mortgage broker.

  14. As “big 5 bank” mortgage specialist, I also value training and professionalism in the industry. However, comparing the mortgage business with medicine or law is rather disingenuous. A mortgage broker, agent or specialist is not a professional.
    Real professionals are paid for their extensive knowledge, and are highly regulated because the consequences of failure are quite severe. Mortgage people are in sales. There is a huge difference.
    It took me 4 years of university to become an Engineer. It took me 2 months of self-directed training to get up to speed in the mortgage business, only because I started from outside the industry. In comparison the learning curve for the mortgage industry is practically flat. The consequences of failure are minimal in comparison, and unlike real professionals someone with minimal training can get lucky and do successful transactions (fill in the blanks, upload the documents, click “send”).
    Perhaps a better comparison would be with other sales “professionals” like mutual funds or life insurance.

  15. That is typical mortgage broker propaganda that I face on a continual basis.
    As a big 5 bank mortgage specialist, I laughed out loud at the statement that “banks do not want to have skilled employees” and they don’t want to pay them much – right.
    Our national sales team has a median income of over $100,000 and a lower attrition rate than any organization in the business, bank or broker. You can rarely join without 3 years experience (I did, though) and we are well trained.
    Oh, and banks are already very highly regulated.

  16. I absolutely agree. Mortgage people are not “professionals” and when they realize that then they will stop talking like they have some sort of specialized knowledge.

  17. Matthew W – Nothing personal. You might have learned your own bank’s limited products in two months, but you definitely weren’t fit to advise people on the best financing after just two months of “training”. If you think otherwise then your overconfidence is a detriment to your customers.

  18. The banks are unethical in their business dealings and it should be noted that they are the ones that are encouraging shelter fraud as they hide the shelter fraud from the authorities.
    Mortgage agents and brokers do work hard at bringing about ethical business practices and there are too many zealots and bigots here who always try to self promote while they tarnish the reputations of their own colleagues who are up and coming. They know fully well that the banks do unfair business practices and yet they would say nothing about that.
    I ask all those investors who buy banks shares to insist that the banks be ethical in their business pratices and that FSCO get their act together and insist that Ontario regulate the banks mortgage sector.
    To those who says its the banks money and they can do what they want with it. I say to you – you should not be in the financial industry because you may be unethical.

  19. Yes but answer they follwing questions:
    Was the transaction done in the best interest of the buyer and the lender?
    Was the transaction honest and ethical?
    Would the transaction cause the borrower any financial stress in the near future or in the long term?

  20. Hi folks,
    Many thanks for all the comments.
    @Al R: That’s an interesting point about governments wanting to remove barriers to entry in business. It always seems like the contrary is true in our highly regulated business world, especially in the mortgage industry with a preponderance of new provincial regulations in the last two years.
    We’ve always been pro-free-markets and anti-regulation, but it’s also our belief that competency standards are insufficient at the entry level of the industry. I’m doubtful the free market would correct deficiencies in this area for many years to come.
    As far as costs, new entrants have infinite choices when deciding on a career. Good incomes in the mortgage business can be six figures. That should hopefully be enough incentive to invest in one’s education. As for the costs to consumers, the benefit of better equipped advisors would likely dwarf any costs.
    @bob: No question about it. The industry has made important strides with educational and professional standards. Moreover, CAAMP, the provincial associations, and regulators, are continuing to move in the right direction. The issue is simply this: At the moment, the standards mostly cover proficiency in mortgage law and ethics, but they don’t cover the essence of what mortgage advisors do: structuring deals properly and making the best recommendations to minimize overall financing costs.
    @SupplyandDemand: Additional regulation would definitely impact bank profits to some degree, at least in the short-term. That is the reality. I have a feeling the banks would be initially adverse to additional educational legislation, due to the cost and for other various reasons.
    On a separate note, the link you posted seems to suggest that broker business has a lower default rate than branch business. In actuality, the opposite is true. But the difference is not that substantial.
    @Matthew W: Thanks for your perspective. Other things being equal, there’s no question that banks want skilled employees. The question is, how much is the industry willing to invest in it.
    Your point about a 3-year experience minimum is interesting. I’m not aware of any bank sales force policy like that. May I ask which FI you work with?
    As for comparing mortgage broker to doctors or lawyers, one obviously can’t draw a parallel between their skillsets. The latter have far more extensive knowledge and long intensive academic preparation.
    Nonetheless, one has to be careful about trivializing the importance of quality financial advice. The difference between good advice and bad advice can be thousands of dollars over five years. Dollar amounts like that can impact people’s lives.
    The best mortgage advisors (be they mortgage planners, bank reps, or whatever) take their roles very seriously. They are constantly devoted to continuing education, they keep on top of vast quantities of ever-changing product information, they understand mortgage mathematics intimately, and have the experience to make subtle recommendations that can save people a material amount of money. Regardless of one’s definition of “professional,” these individuals are as professional as they come in the financial services industry.
    @MB: There would definitely be resistance by some institutions to new practical education and experience minimums.
    @Bankspecialist: The word professional has different meanings. In a basic sense, a professional is someone who has a profession (i.e. a permanent career). Drilling down on the meaning further, a “profession” can be a calling requiring extensive knowledge and considerable academic preparation, or it can simply be a principal calling, vocation, or employment. These are Webster’s definitions anyhow.
    In any event, there are countless agents (and bank reps for that matter) who meet the definition of professional. They are exceptional at what they do and they practice with knowledge that takes most full-timers 2-3 years to acquire. They help homeowners and businesses structure their biggest liability (where the cost of bad advice is material) and they act as trusted advisors throughout the process.
    @DIVA: We were all newbies. That’s for sure. I can tell you personally that Melanie & I came into this business and devoured every iota of mortgage strategy and best practices we could find. We put in 70 hour work weeks and devoted everything to the business. Yet, it still took a few years before I feel we were truly capable of giving someone the best possible advice. You simply don’t know what you don’t know until you’ve done 30-40 deals (or whatever the number is). I’m with you 100% on a volume or deal minimum for certification. New brokers could achieve the requisite hurdle, for example, by co-brokering with a more experienced lead planner.
    @greg: With all due respect, you make some pretty serious accusations there, without a lot of meat.
    Cheers,
    Rob

  21. I sense from your attitude that you are nothing but a salesman Matthew. If you had any pride in your job, or in the mortgage counsel you give clients, then you wouldn’t talk the way you do. In fact, you belittle your own job so much that I suspect you might not even be a mortgage specialist. If you are, then your cocky attitude is a major disservice to your colleagues.

  22. Regardless of the requirements needed to be a member of the mortgage industry I think the market turns it into a real profession. I started as a mortgage associate 4 years ago and I had to work extremely hard to prove to potential clients that I was a good choice to instruct them on a mortgage. The public isn’t dumb – they won’t trust anyone just because their card says they are a “mortgage professional”.

  23. I always “test” other so-called professionals in the industry whenever I go to trade shows, or they approach me at networking events.
    It is extremely remarkable and sad that both spectrums of the lending field, be it Big Banks or brokers, that so many of them are not in tune with the recent mortgage rule changes from 6 months ago.
    If anything, I have heard more ways of how mortgage professionals have said they have a workaround to every scenario.
    Why not work smarter and harder to educate yourself and your clients before you peddle products and solutions right out of the gate?

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