A Book and an Exam Aren’t Enough

Mortgage-EducationYesterday we tweeted about the importance of experience when giving mortgage advice. The message was that brokers with less than 12-18 months of experience need mentors.

In response, we got this message from an anonymous reader:

“[Your] tweets regarding mortgage experience are disturbing –> No, you don’t need a 4 year apprenticeship to become a mortgage broker. The one book and a single multiple choice test is enough. Trying to limit people in the sector so you can fatten your wallets??”

It seems our attempts to shut out newcomers and corner the mortgage broker market have been discovered. Next time we’ll better cover our tracks.

And now for some facts…

According to Maritz Research, people use brokers for three primary functions:

  1. To get the best rate and product
  2. To become better informed
  3. For a wider range of products

brokersBut the top drivers of mortgage satisfaction (as stated by actual customers) are different:

  1. Trustworthy advice
  2. Personalized service
  3. Ease of doing business with
  4. Providing info to make informed decisions
  5. Understanding my needs

How well do brokers do at this? Well, only 51% of broker customers indicated complete satisfaction with their mortgage rep, says Maritz. That’s better than the 43% of non-broker customers who said the same. But it still leaves roughly $35 billion a year worth of brokered mortgages where the client is at least partially unhappy.

In many of those cases, the broker dropped the ball on one of the satisfaction drivers above. And that brings us to new brokers.

As the reader noted, most brokers need to be licensed. To do that, they take a class, read a fat book and take a test. It’s not a cakewalk for newcomers to the business, but it’s not exactly a CFA exam either.

The book and test provide a basic mortgage foundation (e.g., what is a mortgage, basic mortgage math, mortgage regulations and so on.). But they provide limited information about how to:

  • Ask clients the right questions to determine suitability
  • Determine the optimal term length
  • Avoid lender compensation conflicts when recommending a mortgage
  • Understand mortgage insurer policies (when premiums apply, porting premiums, down payment rules, self-employed, etc.)
  • Comparing less-obvious mortgage features (penalty calculations, port rules, blend and increase, no-frills mortgages, conversion policies, etc.)
  • Understand the mortgage rate market
  • Recommend mortgage strategies for seniors
  • Determine the benefit of refinancing
  • Calculate debt ratios for self-employed borrowers or those with rental properties
  • lending-marginsDo advanced math for comparing open vs. closed terms, hybrid mortgages, weighted average interest costs, cash-back mortgages, etc.
  • Advise on the pros and cons of different down payment sources
  • Stress test clients
  • Spot signs of fraud
  • Understand the very basics of commercial and income property lending
  • Manage the discharge, appraisal and closing process to ensure deals close smoothly and on time
  • Structure applications to maximize chances of prompt approval
  • Build credit and get a non-prime borrower into an “A”-mortgage as soon as possible

So alas, you need more than a book. Organizations like CAAMP, Genworth, and others provide practical education, but it’s no substitute for experience and on the job training. As a new practicing broker you’re constantly learning every day. The problem is, when you first start you don’t have many clients to practice with, and you don’t want to make mistakes at their expense.

Back when my career began, I read every mortgage book, mortgage website and mortgage-related magazine I could get my paws on. I also began researching mortgages and writing about them for a living. Yet still, I made a fair share of mistakes. We all do.

I’ve written many times that I would not have wanted to get a mortgage from myself when I first started in this business. I simply didn’t know enough to properly select terms, products and rates, and help clients close without delays or hassles.

Fortunately, my wife was a great mentor (she started before me), and she had her own mentor in Rob Zanet, a tremendously knowledgeable and ethical broker from our old home town of Windsor, Ontario. That mentorship cut down the learning curve enormously, to months versus quarters.

New brokers need to work hand-in-hand with experienced brokers for at least 12-18 months (but not four years, as suggested above). In fact, some believe a short apprenticeship period should be baked into provincial licensing guidelines.

There are so many mistakes a broker or bank rep can make, and the cost of those mistakes (to the client) is sufficient enough to warrant structured mentorship and/or apprenticeship programs.

Tales of a client’s bad experiences can spread at light speed in our online age. That, and the potential cost to consumers, makes insufficiently-trained brokers one of our industry’s top threats.

Rob McLister, CMT

  1. What a great, thoroughly reasoned article.
    Facts are facts: study the book, take classes online, pass the test: you’re still not a mortgage broker.
    Yet, some brokerage’s whole reason for being in business is to recruit as many new people working part time from their basements as possible.
    Every deal a new person is working on should be reviewed prior to submission by a qualified mentor for the first 12 or 18 months. It just makes sense. It’s not about being against new people, it’s about a quality experience for the consumer.
    Thanks Rob.

  2. Great article! The textbook doesn’t teach you anything that you can’t already find through Google.
    I took the course back in 2008, the very first year when licensing became mandatory in Ontario. In fact, my class at Seneca worked on the first edition in Ontario.
    While I did have some education about the material from post-secondary economics, personally I found the course to be quite easy. But believe it or not the passing rate was only 50%. Even if you pass the course, the textbook doesn’t teach you how to deal with real-life situations. I learned that the hard way by doing actual transactions and shadowing a mentor broker.
    It’s also worth mentioning that the textbook teaches you nothing about the sales aspect of this job.

  3. Ron, your comment by very definition is wrong.
    Regardless of your preferences, if someone follows the steps you described, they are a mortgage broker. And whle more oversight is certainly advantageous, they are still left more qualified than many bank reps out there pushing mortgages.

  4. I’m a fairly new mortgage broker and Rob, you hit the nail on the head.
    Sure, I took a class and an easy test and technically had my license, but if that’s all I had done, I would have been (and would still be) an AWFUL mortgage broker. I opted to mentor under an established broker in town both before and after getting my license, and she continues to mentor and advise me on all my deals. With each additional client I work with and deal I do, I become a better broker (further exemplified by the fact that I was nominated for best newcomer at the upcoming Canadian Mortgage Awards). I learn something new on almost every deal I do, and I’m sure will continue to learn for years to come.
    Broker education is anemic at best, and definitely needs to be improved. A mandatory apprenticeship program would go a long way to lessening the mistakes new brokers make, which would ultimately improve consumer confidence in our industry.

  5. Great article Rob.
    Without question newly-licensed individuals should be prohibited from dealing/trading/brokering mortgages until they’ve served an apprenticeship. Many of us who are licensed to deal in mortgages in Ontario have been for years advocating a period of internship under the guidance of proven mentors.
    Regrettably many practitioners enter the business with greater interest in killing the prey rather than earning a reputation as a professional whose advice can be trusted by consumers.
    One more comment…..the bar is still too low for achieving licensing.
    Lou Perrotta, CPMB
    Domus Financial Corporation

  6. I used to work as a financial advisor at TD Bank before I left the finanical industry. I am horrified by the lack of training I rec’d regarding mortages. I processed about 20 of them in my TD career and every one was probably more stressful for me than it was the customer! There is NO training; it was sink or swim. We were lead to believe that we had the best rate by the ONE regional mortgage specialist (although that was untrue) Now that I am no longer in finance I would not be comfortable getting a BANK mortgage. Of my mortgage pushing colleagues including myself I would estimate that less than 10% of us actually had a mortgage ourself.

  7. Does a newbie need to work under an experienced broker? Absolutely. However just as important as experience/knowledge is what kind of person are you…Of the 5 areas where agents/brokers fail according to your article only point 4 was one of knowledge and experience the other points all related to personal qualities…trustworthiness, helpfulness, etc…

  8. The course and test are a joke – I’m amazed anyone can fail.
    I reviewed the material after work for a few days prior to the test and I think got one answer wrong.
    That said, it’s been two years and I’m sure as heck no expert. It’s a constant learning process and requires a lot more than simply taking a test.
    LOL @ The “fatten your wallets comment”

  9. Great article and I 100% agree. I’m a mortgage planning specialist and worked with a mentor in my earlier months. There is nothing in the book that could have prepared me when dealing with client situations. Even up to today, I’m still learning. If you have a mentor there is more chances of catching error before it happens but if others rather not have a mentor, got do it, that’s one more agent down the drain.

  10. For newcomers to the business:
    1) their applications should be reviewed before submission by their broker or a broker designate
    2) their broker should schedule a weekly meeting (1/2 -1 h) where issues, concerns and applications being worked on can be discussed
    At the same time newcomers must take advantage of learning opportunities.
    3) if a lender’s rep is making an office presentation he/she should be attending
    4) if your company has a roadshow or conference try to attend as lender reps are there to pitch their and discuss their mortgages and the requirements for each.
    The learning process is a two-street.

  11. Rob and Melanie!
    You guys are funny! And it is so True. The #1 problem for brokerages and teams is how to propertly train and mentor brokers.
    Excellent post. You have our support and thanks to the anonymous reader because inspired this post!

  12. ALL of these things can be taught or influenced by a good mentor:
    -Trustworthy advice
    -Personalized service
    -Ease of doing business with
    -Providing info to make informed decisions
    -Understanding my needs
    Take trustworthy advice for example. If you work for a me-first broker, you may learn to pick the product that pays the most. If you work for a client-first broker, you’re more likely to put compensation second when making your recommendations.

  13. I could not agree with this article more.
    I am a 3 year broker, working with a brokerage of about 25 multi-decade-years-of-experience agents led by two well respected and top-shelf industry veterans. I’ve always considered myself savvy about most things money, and I’m quite glad the “fat book and multiple choice test” was the only requirement for me to get my license. This is because I think I knew more about money, mortgages and personal finance than 75% of people taking that test, and I have extensive solutions based sales training and experience, so I’m glad the ‘barrier’ to entry was low for me. Before my first client came along, I knew how to uncover needs, and with some diligence in product knowledge (with the help of my mentor, broker, and the other agents) I had a good head start on knowing exactly what to recommend and to which clients. After hearing stories about other agents over the last few years, I know that I, my business partner, and my brokerage are the exception, not the rule.
    After taking the education component I discovered quickly why there is a huge element of mistrust among the general public when it comes to using brokers: a large portion of new agents (and frankly some ‘experienced’ ones) have no idea what they’re doing.
    My partner is a CA, and I have extensive career experience in land tenure and contracts (my sales experience was my college-era job). Our broker has an MBA, his partner is a licensed realtor in addition to being a mortgage agent, and my mentor is a former HR professional. This huge range of experiences we can draw from is what allows us to deliver on our service promises. In fact, my partner and I built our brand around strikingly similar values and outcomes about 6 months ago to position ourselves away from ‘most’ brokers and into a niche of “brokers who really know what they’re doing.” We laughed at the time at how that’s a legitimate differentiator, but its far from funny. Two days ago I got a call from a friend whose friend had her condition waiver date that night at 9pm, and was freaking out about how the broker they’d used, new to the business, had sent her up the creek with no paddle, so to speak. The best I could piece together was that this agent had got the client a rate hold, not an underwritten pre-approval, and only when the deal went live did this agent clearly understand how things should have been presented and what some of the issues were.
    Looking back on the last few years, I agree that some formalization of the type of experience I’ve had should be part of the licensing process. Integrity goes a long way, and reputation is the only thing we have as an industry. There are too many agents out there who don’t know enough or just don’t care enough to act with integrity to best serve the public, and to protect the reputation of their peers whose livelihood counts on it.

  14. Hi there I got licensed in June of 2011, and I do think there is some validity in your idea of mentorship, however one of the problems of an apprenticeship type system is that if I take up too much of the brokers time I think he or she would want at least half of the commission I get.
    This business is just like any other service business. It’s mostly people skills, and how badly you want to be successful at it. If you want to be good at it bad enough your mentors will appear.
    My broker gave me a list of all the bdm’s and the company they worked for. Asked me to contact them all myself and arrange a meeting . In that meeting I was to ask them what was their niche product. I did arrange around 30 different coffee/lunch appts, and met the bdm’s and got to learn what lenders want from mortgage agents.
    Clean deals.
    now I know what customers want, just pretend you are in their shoes.
    The other stuff is basically collect documentation up front fill out an app and send the deal to the right lender.
    I was told by my broker that hardly any agents will meet up with the amount of bdms I met with.
    She said she used to handfeed/babysit new agents and yet still none of them would go to work and do what she told them to do.
    To try and put in new regulations / barriers is just going to be another headache for new recruits.

  15. As someone who has been training brokers and agents for 25 years, I couldn’t agree more. The present courses teach you enough to get licensed…not how to be a good and successful broker. First we need to fix the qualifying standards for licensing, which are woefully inadequate. Then we need to enforce some sort of graduated licensing. Anyone who thinks they are proficient simply because they passed a multiple choice exam is either naive or delusional.

  16. Very True Rob,
    you need Mentor in every field when you are starting, many mortgage brokerages are hiring
    for head count, the training is nil and commission split is advantage to the broker.

  17. Well said, and it should be mandated Mentor training for post-graduating or implemented within brokerages.
    Is there a time limit to when you should be “set free” though? 12-18 months, first 12 deals, or rather based on a Competency Report Card from a good range of files and client interactions.

  18. You should be thrilled to give up half your commission if it means serving your clients more capably in the long run. The first few years of brokering are like extended schooling. You have no right to expect a big split.
    New brokers have to stop worrying about compensation in the beginning. If you focus on learning the basics inside out and treat clients like you’d want to be treated, the money will come.

  19. Many Professional designations require you to have at least 2 years of relevant and progressive industry experience before you are designated. That is in addition to a relevant degree and post degree studies.
    Its long overdue that both licensed Realtors and Mortgage Professionals up their game and raise the entry bar.

  20. Well done, I could not agree more, I work for one of the Big 6 as an MS, and I have said that our new recruits should have a mentor, I don’t care how long they have done mortgages at the branch level, once you get into this role, you soon realize that you know nothing at all. It took me around 3 years to truly develop my skill set to the point I felt I was good at what I did, and, I am still learning, in our world, we may only deal with one product, but it is a very complex product at times.

  21. Felt compelled to comment on the “Fatten your wallets comment”.
    It’s crying ‘fatten your wallets!’ one day, and then whining ‘No one told me that about my mortgage!’ the other day. And it’s often times coming from the same mouth.

  22. As someone who has taken the licencing course, worked as an underwriter at a bank AND was employed as a real estate conveyancer for over 10 years, the amount of “BAD” information I have had to correct from buyers/borrowers that came from the broker is astounding to me, but the same can be said for Realtors, the licencing courses are just not up to snuff in my opinion

  23. I wish I could hire on more mortgage associates to my team here in Winnipeg, but everyone who applies has almost 0 knowledge of the industry. And that includes people who have been around for several years. I’m not quite sure how they manage to pass the course?
    For any consumers reading this, when looking to engage a Mortgage Broker, ask them how long they’ve been in the business, or how many deals they’ve done. Don’t trust your biggest purchase to just anyone…

  24. Thanks for the note Chris.
    It reminds me of the line that Jim Collins is noted for: “Good is the enemy of great.” In the mortgage business, I’d extend that to “Good enough is the enemy of good.”
    There are countless highly skilled professional brokers and bankers out there, but the majority seem content with being “good enough.” And, in my experience, their “good enough” isn’t all that good.

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