5 Things Your Mortgage Broker Isn’t Telling You — Reviewed

5-Things-Your-Mortgage-Broker-Isnt-Telling-YouThis story from MoneySense — “5 things your mortgage broker isn’t telling you” — caused quite a fracas in our industry this week.

Brokers understandably found parts of it misleading and were angered by the headline, which seemingly paints all of us with the same brush.

Despite its inclusion of my comments, I didn’t get an advanced copy of the story. If I had, several problematic generalizations would have stood out. Among them…

Re: “Your Broker” has Commission Conflicts

· Fact: Compensation influences many a broker. There is no denying that. Things like tiered pricing, volume bonus and “points programs” routinely lead to conflicts. (For that matter, compensation conflicts also cause many bankers to quote above-market rates.) Despite that, some brokers use a revenue-neutral methodology when recommending mortgages. In other words, they pick the best lender and product for the client and then look at the compensation. Other things equal, a borrower is best served by this type of broker, but it’s hard to know when you’ve truly found one.

· Perspective: Most brokers’ overriding desire is to close the deal, get paid and get referrals. That requires a satisfied customer. This incentive largely counterbalances potential compensation conflicts.

Re: “Your Broker” doesn’t Negotiate as Claimed

· Fact: Brokers never negotiate with 40+ lenders, not for one client. Instead, they size up the borrower’s situation and recommend a lender from their approved lender list. That “list” generally has far less than 40 lenders. (We’re talking only about prime mortgages here. The non-prime market is a different story.)

· Perspective: If you are a qualified borrower and you go to a bank, you get recommendations from one lender — that lender. By contrast, a broker typically recommends products from up to a dozen sources, with 90% of their business going to roughly three lenders (according to Maritz Research). If the broker does high volume and maintains status with multiple providers, he/she may recommend from a list of 15–20+ lenders. That’s why a broker from a high-producing brokerage can sometimes get you a better deal.

Re: “Your Broker” is Inexperienced

· Fact: Other things equal, consumers are better served by experienced brokers. Inexperience can lead to less suitable lender and product recommendations, more paperwork, delayed closings, unnecessary fees for the client and so on.

· Perspective: The majority of full-time brokers have been doing mortgages for years. But there are also talented rookie brokers who work under experienced mentors. The “fact” above starts with “other things equal” for a reason, because new brokers sometimes discount more aggressively. That can occasionally offset some of the experience factor. Just remember that interest rates are but one element of total borrowing cost.

Re: “Your Broker” isn’t Highlighting the Fine Print

· Fact: The article misleads here, to say the least. Most brokers go out of their way to differentiate themselves from financial institutions (FIs). One way they do that is by offering expertise on the “fine print.” Brokers compare contractual terms from multiple lenders and typically must disclose product risks, by law. A 10-basis-point rate savings is useless if you pay more on the back end with inferior refinance, blending, porting, conversion and/or penalty policies. Mortgage professionals know that, and most want you to know that.

· Perspective: Certain bad-apple brokers may skim over a mortgage’s features and just sell the mortgage with the best rate, most broker compensation, or best lender perks (for the broker). But this is not the rule.

Re: “Your Broker” has No Options for Unqualified Clients

· Fact: Experienced brokers use numerous strategies to help clients who may not qualify (e.g., tactics for those with hard-to-prove income, credit repair, credit score optimization, down payment and co-signor strategies, second mortgage strategies, etc.).

· Perspective: Non-prime (a.k.a. “B”) mortgage lending is a specialty. “A” brokers sometimes hold themselves out as “B” lending experts when they’re not. Unless they’ve closed tens of millions in non-prime business and/or the majority of their business is non-prime, they likely don’t have the expertise of a true alternative lending specialist. A brokerage head I respect once said that only 5% of brokers are truly competent in “B” lending. That’s probably not far off. Nevertheless, brokers are generally far more versed than the average banker in counselling hard-to-place clients.

*******

As this story demonstrates, sweeping statements can seriously detract from an article’s message. The worthwhile consumer cautions here seem to have been lost in the way they were presented.

MoneySense’s next article (“5 Things Your Banker Isn’t Telling You”) should be even more thought-provoking. That one’s on the way — right, guys?


Rob McLister, CMT

  1. I’m quite surprised that the article’s authors wrote something so one sided. As you mentioned, there are great brokers and not so great brokers but this is no different than any other industry. Painting all brokers with the same brush is unreasonable. For myself, I take the time and go out of my way to detail the various conditions that differ from lender to lender. I also explain to my clients how ”rate shopping” is misunderstood and how it really works. Full disclosure is always the best course of action! I think in the end we should use this article as a source of motivation to take the time to train existing and new brokers that we mentor on the best practices of our industry and how to correctly inform clients and build a solid business.

  2. Victor Simone – Like you said 30 to 35% percent dont agree. I have been in the industry for 10+ years and I have worked for a brokerages, lenders and banks and I have seen it all with the non ethical practices that brokers abide by.
    These are some great points and some that will put some reality back in perspective that everyone a broker, associate, mortgage specialist is to look out for the clients best interest and not just yourself. Imagine if you were the client, how upset would you be if your broker placed you with the bad rate and product just because of the compensation the lender or bank was paying out. Whenever the market becomes unstable and goes down, everyone is scrambling to to get everything approved even if that means they are going against there code of ethics.,

  3. Can you believe that a member of the Canadian media would publish an inflammatory and somewhat questionable article regarding the business of financing homes or interest rates? That has never happened – more than 1000 times in the last several years…Our illustrious Canadian media has always accurately reported all the facts when it comes to financial matters haven’t they? (insert wry smile here)
    If this publication was concerned at all about the accuracy of its information in this small article it would have been written by someone working within the financial system and not a freelance writer. However the very insightful comments by the academic were very much appreciated…
    Putting all the sarcasm aside, I for one am happy to at least have the discussion started. Press at any point involving mortgage brokers is a step in the right direction if nothing else to raise public awareness about our important services. Perhaps our national organization could spearhead more articles about the benefits of a mortgage broker in financial publications like this??
    Maritz research has already shown that the general public think that bank road reps and mortgage brokers are the same thing. Perhaps attempting to educate the public about the very different aspects of those two positions would be something that our national organization should jump in on? Like the fact that they are all on commission as well?? Or maybe we should discuss the sales targets at the branches for certain mortgage products and their creditor life insurance spiffs being sold everyday by unlicensed individuals? Guess we will have to rely on CBC Marketplace for that one…
    The more discussions that we as mortgage brokers can be a part of the better I say. How about an article the tells the public about the investors behind the monoline lenders? Maybe the public should know that the money behind quite a bit of the broker channel is in fact their own bank – RBCDS for example?
    Possibly the client would like to know that the mortgage that I just arranged for them at a lower rate than their bank, with no posted rate BS to affect an IRD penalty down the road, with better prepayment privileges AND that there was commission paid as well was actually funded by their own bank? Hey, if we are going for transparency…
    As a community of mortgage brokers in Canada I think it is important to have the dialogue – obviously with our clients – but also in the articles like this one to get public awareness up. I would personally love my clients to come into my office with this article in hand so I can “clear the air” just like I did when BMO was pedalling their 2.99% No Frills Mortgage a couple of years ago. What a great way to earn a client’s business!!
    With 75%+ of the mortgage holders in Canada getting financed at their branches, I would love to see as much press as possible speaking to dealing with a licensed and experienced mortgage broker as an option. Let’s get the discussion started! It’s a good thing!
    I know as an industry we already tried the Comedy Channel at 2am but I know we can do better than that…

  4. I am not a broker (or a journalist) but I really like your blog. I find the subject interesting as simply a mortgage holder. I did find your statement “sweeping statements can seriously detract from an article’s message” to be kind of humorous though. Your counter points to the article were equally as sweeping as the original article. Granted, you should have a better pulse on the industry then the original author, but there was still no more fact in your rebuttal then the original argue.

  5. Hi Bryce,
    Thanks for the “like.”
    By all means, please share specific examples of the sweeping statements we’ve made that detract from our article’s message. If they do exist, we’ll discipline ourselves accordingly. :)

  6. The article is an argument FOR using a competent broker not against. Other than point 1 which brings a greed vs ethics dilemna. #2…no your broker does not submit THIS deal to 40 lenders…but we have done our research into the top 4-5 lenders (IN OUR EXPERIENCE) and recommend the ‘best’ lender (or 2) for your mortgage and present them for you to select. #3… of course, some brokers are inexperienced, and some have vast experience…on average, we are average. An attempt to brand us all inexperienced is illogical. #4…I believe brokers have more experience than lender reps contrasting various Lenders ‘fine print’. Because we have seen the differences and evaluate which are important in different situations (see point 2 above). In some cases, clients knowingly select restrictive terms in favor of a lower rate. #5…B deals are one of the biggest learning hurdles for inexperienced brokers. However, experienced sub-brokers with help from good broker, can find options for less qualified borrowers. I assure you, your Bank is TERRIBLE at sub prime.
    On face the article took aim at all brokers…read carefully, it says “choose your broker wisely” for which our industry should have no concern.

  7. Interesting how a writer (journalist) can instantly claim expertise in an area merely by having piece like this picked up and reprinted. A quick google search pulls up equally poorly researched “fluff” articles on money matters, along with her main writing focus – children’s fiction. I particularly liked her CBC news article on “Why Are Growing Numbers of Canadians Late For Work?”
    I realize that her points would strike a nerve with the average reader here, but I wouldn’t get too upset. For all we know, her spouse/partner/sibling/parent was in lending at RBC.

  8. Tell the public something new please. Most brokers advertise that they have exposure to multiple lenders – not they negotiate with those lenders each transaction. Yes brokers do negotiate and often discount their client’s mortgages to 40% of the regular pay. Qualified mortgage broker’s do serve their clients well and do create more options – provide knowledge etc.
    Really your article is not written intelligently – it is kind of slow and not original. I give your article a 2 thumbs down! Brokers keep doing the great work you are doing! Educate Canadians and lead the way!

  9. Rob, don’t pay too much attention to Stephanie. Check out her wonderful website that pushes great rates but has NO RATES ON THE WEBSITE. Set aside the grammatical and spelling errors you can guess what you are in for when the Bio reads: “recognized as a very knowledgeable and financially skilled broker who maneuvers around numbers like very few” I was unaware numbers stayed still when they saw you were stalking them.
    You also have to wonder about a broker who advertises right on their website: “show the bank 5.00% down payment but then only put down 2.00%” Seriously, I mean SERIOUSLY!

  10. What I find rather funny is that the author wrote a one sided article, on a site that has no problem advertising “Find a broker” and to boot, careers in Mortgages, above.

    I’m wondering if he has his facts in order. I have bought and sold 4 houses of which one was refinanced. Through all my lender dealings, I’ve always used a mortgage broker over a 20 year period. They have always got me the best possible financing and have always acted in my best interest.

    There are shady professionals in every field, accountants, lawyer, doctors, investment brokers, etc. To taint an entire industry based on one point of view would be a very primitive way to viewing a subject.

    In Canada, FSCO, governed by the Minister of Finance would not be party to allowing hundreds of scammers running around and giving them a license to do so.

    I don’t profess to know everything surrrounding the mortgage broker industry, but I think the author of the above article is bias due to a bad experience.

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