MCAP’s Pre-Approval Change

The-Mortgage-FilesOne of the most damaging things a broker channel lender can do is lose brokers’ confidence. When that happens, brokers route their business elsewhere.

Confidence was recently shaken in our channel's 5th largest lender, MCAP, when it announced that “status” brokers could no longer apply discretionary discounts to its pre-approval rates.

MCAP’s decision came after extreme volatility in the bond market caused the cost of rate holds (including hedging costs) to rise considerably. The company, which advertises its pre-approvals as the “Best in the industry,” reportedly got inundated with them as rates moved higher in August.

Certainly no one can blame MCAP for changing its pricing policy to reflect cost increases or funder restrictions. The problem is, it apparently changed the allowable discounts on existing pre-approvals. Brokers relied on those discretionary discounts when quoting rates to people.

Now, affected brokers must either:

  • cover the rate difference from their own pocket (not great for broker/lender relations), or
  • tell clients that their rate won’t be honoured (a potential client relationship killer).

(We hear unofficially that some exceptions are being granted to top brokers.)

MCAP is led by some great people and industry folks can sympathize with the company’s pre-app difficulties. But setting expectations that brokers rely on, and then not living up to those expectations, leaves a bad taste in people’s mouths for a long time. MCAP might have come out further ahead by absorbing this hit to protect its brand.

Rob McLister, CMT

  1. Interest rate gyrations seem to be flooding the news lately. I’m just glad that it is the market (bond market specifically) that is determining the latest rate hikes; and not government (monetary) policy. Maybe the N. American economy is actually coming out of hibernation.
    In the mean time, for you Bank of Canada nerds, here’s an interview from the Western Gazette with fellow alumnus, Governor Poloz.

  2. Thank you Rob for a very well written and fair article. In business (and in life), following through with your promises is important. If you say you are going to do something, do it. MCAP backing out on discretionary pricing on previously submitted pre-approvals is a slap in the face to brokers and reflects on their credibility. This will not be forgotten

  3. …ethics & credibility? … Yes, rates change & some times you “commit” to do something that could cost you money, but if you have any credibility in any business you honour it, for everyone, not just your “top brokers”… And you do it because it is the “right thing” to do, not because publicity embarrasses you to do so.
    OSFI/FSCO may want look at management controls & funding at MCAP. Why is MCAP handing out “pre-approvals” at specific rates when they appear not to be in a position to fund them? Is MCAP dumping potential losses on brokers, so that management/employee profitability bonuses are not damaged….brokers use your heads when choosing a lender , your credibility is really what you are selling

  4. Well written as usual Rob…it is truly unfortunate MCAP chose to take away the rates on the preapproved deals in the queue…this is the part I had a major problem with. I hope there is a solution offered, as going back to a client to explain that they now can’t have their locked in rate is tantamount to promising a 4 year old ice cream and giving them turnips.

  5. I agree that the position MCAP has taken is not kosher business practice. It’s unfortunate it had to come to this and I hope they come to see the light.
    Having said that I do think we have to take some responsibility as brokers for how much we may have abused the pre-app system. I often throw in a deal as a pre-app even if there’s a small chance it’s going to go anywhere. Do we ever think of how much it actually ends up costing the lender?

  6. Good point from BCBroker. One thing I am certain of and that is that MCAP must have felt they had no choice but to make this change. This was not a casual decision. As one of the only lenders with a very automated pre-app system perhaps the speed of the rate increases coupled with the onslaught of pre-apps made hedging costs unmanageable. And Pre-app to funding is only one in 10 at best so hedge costs must have seemed crazy based possible future return on investment.

  7. WE abuse the pre-approval process??? Our clients want & need pre-approvals! Lenders offer pre-approvals. Lenders have, or should have, an idea of their closing ratio to pre-approvals, and they do/should hedge their cost of funds accordingly. If the lenders “bet” the right way they win & make money. If they bet the wrong way on the hedge, they lose. Does it appear in this case MCAP wants consumers &/or brokerages to take the loss on their bad or inadequate bet?
    If Lenders don’t want to do pre- approvals, fine, call an end to them. However, pre-approvals already in the system, given to clients, should be honoured, for ALL BROKERS,and forget this “top broker” crap.
    If you are not a MCAP “top broker”, & pre-approvals for your clients are not honoured, could you, considering you have a responsibility to your client, ever do another deal with MCAP?
    You can’t change the rules mid-stream because you haven’t hedged adequate funds to cover your pre-approvals.
    This action by MCAP is the sort of thing that calls the mortgage brokerage industry into disrepute.
    MCAP is licensed by FSCO in Ontario as a mortgage broker & and an administrator. If MCAP does not honour ALL pre-approvals, that meet conditions, then I would suggest that FSCO should be in examining & investigating MCAP’s management and funding processes.
    This is a first & foremost a matter of consumer protection & secondarily,broker protection & credibility.

  8. I hope that Lenders realize that all mortgage agents deserve good products, not just the “top brokers”.
    Allowing the “top brokers” to buy down rates is a way for those top producers to win borrowers away from lower producers.
    Ask FirstLine how well that strategy worked.

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