Bank Mortgages: Disclosure and Suitability

disclosure-of-mortgagesThere are so many things the Average Joe doesn’t know about the mortgage business.

One is that bank mortgage reps often get paid more for selling higher rates—as do many brokers.

Another is that banks sometimes direct borrowers to outside lenders that the bank has financial relationships with. This happens when the bank chooses not to service the applicant directly (due to qualification issues or an inability to meet the customer’s expectations).

Both of these issues entail potential conflicts and disclosure problems, but banking regulators don’t monitor these matters as closely as you’d think. That was the topic in this week’s Globe column: That story


The article linked to above examines concerns in the banks’ retail mortgage channels. On March 4, we’ll take an honest look at conflicts in the broker market.

Such articles will undoubtedly annoy certain stakeholders, but the conflicts they expose rarely apply to bank reps and brokers who take their fiduciary obligations seriously. Those are individuals who never fear an informed consumer.

Rob McLister, CMT

  1. Love it! GREAT article Rob. Point by point factual.
    My only question is why did it take a single intelligent broker to write this article? Shouldn’t an article with this great detail & research have been produced by the pricey bureaucracy of the national orgaization that is supposedly representing mortgage brokers?

  2. So if the Bank reps are not”dealing in mortgages” requiring a FSCO license in Ontario then HST should apply. So how are they avoiding the HST in Ontario?

  3. Going out on a limb here but…
    This website, and its contributors, offer more to the mortgage broker industry than all of CAAMP, CMP and whatever else combined.
    Fancy dinner get-togethers to celebrate just how great everyone is doesn’t do anything for the average Canadian mortgage consumer.
    Just my opinion.

  4. I agree with Dave, absolutely a wonderful arcticle. It is precise, factual and insightful.
    I have to point out that CAAMP and CMP fund their operations largely on the backs of Banks, Insurers, Tech and other service providers who simply cannot declare open warfare on the Big 5 banks. Heck, I don’t think mortgage brokers really want to bring down the big 5 banks.
    The truth is the Big 5 enjoy a direct relationship with our Federal Government that colors all these very truthful concerns about disclosure and conflict. The government feels the banks will do right or can be made to do right and the banks feel they obey the regulations “enough”.

  5. Sure, don’t disagree.
    Interesting comment re: brokers not wanting to bring down big 5 – I bet the banks would be more than glad to see all the brokerages go bye-bye.

  6. I read the linked article and quotes from Gale and found it misguiding and left me a bit confused. So if a big bank refers your declined deal to a brokerage to whom they have a relationship with let’s say financially, is the brokerage not responsible for following suitability, recommendations and disclosing compensation/fee structure to the client?
    Banks have a “strong culture of compliance,” counters the CBA’s Maura Drew-Lytle. Banks make mortgage specialists attest to their compliance obligations and subject them to annual training and testing. Mortgage reps can also be fired, which is less of a threat for mortgage brokers. Ms. Drew-Lytle also notes that banks address most consumer complaints internally, using well-established complaint processes with a third-party ombudsman as an arbiter.
    Agreed, job well done.
    All of that is true. But when it comes specifically to suitability and compensation conflicts, the goal should be to fully disclose and avoid them, not address them when there’s a complaint.
    So again, is the brokerage/broker who recieves the deal not disclosing fees,suitability and disclosing applicable information to a client who has been refered by the bank?
    Can someone help me because it seems like Gale here either doesn’t know what she’s talking about or you tell me what the issue is. The alternate arm for the bank is the one doing their part when dealing with a client who is now theirs. In a situation when the bank has declined a clients deal, the broker/brokerage takes over.
    Where is the fall?
    I’m sure we’re all doing our job just fine in helping our clients!

  7. Let’s use RBC for an example. The alternative arm to the bank say in RBC’s case is not a standalone full brokerage. They have a select group of lenders they deal with, mainly B lenders, and these mortgage agents are still employees of RBC.(on closing the MS of RBC gets paid, the AMS of RBC gets paid and RBC themselves gets paid). So maybe the product the client is looking for or their requests do not suit what RBC is willing to lend on does not mean another FI would not approve the deal themselves(i.e Scotiabank). So if a client is declined by the bank than they should have the right to fully explore all the other lenders out there for the right product and approval to suit their needs. A full service brokerage who is not employed by the lender or tied to the lender financially can than explore what suits or not for the client. Does that make sense now ?

  8. The issue is that people don’t realize the bank is referring them to another lender because the bank gets a kickback. Customers actually think it is the bank that is getting them the mortgage. They trust that the bank will recommend the best mortgage. The bank leverages that trust to direct the customer to a lender that pays the bank.
    The minute your bank says it can’t meet your needs, run, don’t walk, to the nearest exit and get independent advice.

  9. Customers actually think it is the bank that is getting them the mortgage.
    – Not true. The bank discloses the use of an alternate arm/lender/brokerage. The brokerage then explains to the client what mortgage product is most suitable. Broker fills suitability and recommends. A broker may pay from his/her own pocket a referral fee to whom ever they chose ie. lawyer, realtor, client, bank, builder, etc.
    The minute your bank says it can’t meet your needs, run, don’t walk, to the nearest exit and get independent advice.
    -So in your mind the bank should not continue to service their clients? Nice sales pitch. Yeah I don’t think so. The referral broker/brokerage would give full independant advice separate from what the bank initially recommended.
    Again, Gale is a bit vague and off in her opinions.

  10. No it does not make sense. Let’s take TD for example. They took my purchase to their alternate brokerage after we determined TD was unable to move forward. I was glad they recommended me to do so as otherwise I would have been lost due to the number of unknown brokers in the market. The brokerage they sent me to (TD’s Alternate lender) was able to give me full options to several lenders. So again, back to this article. Not sure if it makes sense and the brokerage then recommended and alternate mortgage lender which now I’m also happy with (big 5 bank) :)

  11. Some banks refer turndowns directly to other lenders. That is how RBC’s AMS division works. There are no suitability regulations that apply in those cases as far as I know.
    Other banks send turndowns to brokerages but there is nothing to ensure those brokerages are the best choice for the customer. They get the bank’s business because they pay the bank. It’s that simple.

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