The vast majority of mortgage brokers recommend suitable mortgages, according to a new report from the Mortgage Broker Regulators’ Council of Canada (MBRCC). That’s vital because, as MBRCC Chair Kirk Bacon states, “Unsuitable mortgages can have a devastating financial impact on borrowers and their families.”
To find out how brokers operate, regulators surveyed 1,113 of them in Ontario, Alberta and Newfoundland. They discovered practices that were mostly reassuring, with a few stats you may find surprising.
These were some key findings:
55% of Ontario brokers said brokering wasn’t their primary source of income
Note: The number was only 11% in Alberta and 25% in Newfoundland
It would be interesting to know how many consumers are willing to entrust their biggest debt to a part-timer
53% of brokers maintain records of why they make the recommendations they do
That’s a problem, regulators say. “…There should be written records” of how the broker’s recommendation corresponds to his/her needs assessment of the borrower, notes the MBRCC
34% of brokers have been licensed for at least five years
In other words, only about 1 in 3 brokers have had clients renew a 5-year mortgage
This stat primarily includes Ontario brokers (Alberta was excluded from this question)
Out of active Ontario brokers, only 1 in 3 do more than 25 mortgages per year
81% of brokers say they “always” search for suitable mortgages from the lenders available to them
69% of Ontario brokers use more than three lenders “on a regular basis” (76% in Alberta)
7% of Ontario brokers use only one lender on a regular basis (and they call themselves brokers?)
40% of brokers do independent research on mortgage products “daily”
2 in 3 Ontario brokers say they represent “both” the lender and borrower
30% say they represent only the borrower
4% say they represent only the lender (if only these brokers admitted that to clients)
The MBRCC outlines three factors in recommending a suitable mortgage:
Appropriateness of the mortgage, given the borrower’s needs/circumstances
Affordability of the mortgage, given the person’s ability to repay it
Alternatives available to the broker
Some consumers are under the misconception that brokers recommend mortgages from all lenders. Very few do. In fact, the majority (53%) of brokers say their role is only to educate clients on the mortgages they, the broker, can directly sell
While regulators don’t expect brokers to know all products, they do, however, expect brokers to recommend the most appropriate mortgage that they have access to
One other key takeaway from the report involves setting expectations. The MBRCC says it’s vital for brokers and customers to have “a common understanding” about the type of product(s) or advice being provided by the broker. You don’t want a situation where clients think they’re getting objective advice but the broker does 80% of his/her business with one lender. Disclosure is everything.
So, what can consumers draw from all this? Well, there are always exceptions and other criteria apply, but if you’re looking for the best possible service and advice, odds are you’ll get it from a broker who:
Makes brokering their full-time income source
Has been in the business for at least five years (or is under the direction of a broker who has)
Compares all of their lenders to see which offers the most suitable mortgage (or knows which do, without needing to compare)
Documents why they make the recommendations they do
Regularly uses more than 3 lenders
Follows the rate and mortgage market daily
Does a comprehensive assessment of the borrower’s needs and mortgage affordability
Believes they represent the borrower, but recognizes their obligation for full disclosure to the lender
Sidebar: Here’s more on the report if you’re interested: Link
The MBRCC says it is also “currently working together to develop national licensing education standards and a harmonized course accreditation process.” That’s a sensible move that should eliminate untold overlap in the licensing process, as well as inefficiencies that prevent brokers from operating across the country.
Rob McLister, CMT
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