Now that FICOM’s B.C. broker compensation disclosure is a done deal, many want to know how it helps consumers make better broker decisions.
We asked the Office of the Registrar of Mortgage Brokers for its take…
CMT: What do you want consumers to do with this new required compensation disclosure?
FICOM: Consumers may use that knowledge in any number of ways. For example:
- They may ask how compensation paid by one lender compares to that paid by another.
- They may ask how compensation influences advice.
- They may use compensation to assist them to judge the value of the services they receive.
CMT: Have you produced any consumer materials to assist mortgage shoppers in interpreting this information?
FICOM: In our April 2016 open letter, we recognize that the development of information for consumers is an important part of the disclosure requirements. Materials will be available for consumers when the guidelines come into force on June 30, 2017.
We encourage industry to explore how it can contribute to our shared goal of an informed consumer, and look forward to ongoing discussions.
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So it appears that FICOM will develop some sort of guidelines to help consumers decipher the raft of new compensation information they’re about to receive. That’s terrific. A key concern about FICOM’s new policy is that some consumers could make bad decisions without compensation data being put into context (as this study has shown).
One obvious example is the borrower who compares disclosures and then chooses the broker who “buys down” rates more, and displays less commission. Such brokers work on volume. By their very nature, they can’t afford to spend as much time advising clients—compared with full-service mortgage professionals. By receiving less analysis and guidance on term selection, interest saving strategies and mortgage restrictions, some discount broker clients could potentially choose mortgages with higher overall borrowing costs. (This is coming from someone who runs a discount brokerage company.)
This is where FICOM can add value. It can counter some of these side effects by helping consumers understand:
- What is routine for broker compensation, volume bonuses and status benefits
- The potential tradeoff between compensation and advice
- The importance of overall borrowing cost and contract terms, over upfront rates and compensation
- How the breadth of products a broker can access (or chooses to access) can impact their recommendations
- How research suggests that brokers save borrowers more (overall), regardless of the lender compensation earned by the typical broker
Ideally the disclosures would focus on differences in compensation (i.e., identifying when a broker is making abnormal reward for facilitating a mortgage). Barring that, FICOM would do consumers a favour by crafting practical information like that above — and tossing in a few examples that borrowers can easily digest. Without this context, comp disclosure could distract many folks from what matters most: overall borrowing cost, not price.
I am really surprised that FICOM does not think that there should be disclosure of referral fee OR disclosure of conflict of interest for credit unions.
For over decade Coast Cap Saving, Vancity, Westminster and many more credit unions have been referring their declined mortgage applications to a BC brokerage firm in Burnaby. The brokerage is paying the credit unions referrals fees for each mortgage. Some of the major banks like BMO have agreement with the same brokerage and are paid referral fee.
The brokerage agreement with these lenders are that not to place the mortgages with their partner’s direct competitors because they don’t want to lose the 1st mortgage and applicant’s investment to the competitors. So that leave the option of sub prime and private lender for these borrower which is not necessarily the best options available for them.
The issue is not so much that the borrowers best interest is not considered first, it is the fact that none of the referral fees are disclosed up front to borrower by these credit unions. .
FICOM never questioned the conflict of interest and the fact that these institutions are obligated under Consumer Protection Act to disclose the fact that they will be paid a referral fee and the fact that the brokreage will look at their partner’s best interest placing the mortgage.
I guess FICOM does not have to regulate credit unions.
Some of the comments are misplaced. FICOM regulates mortgage brokers, not everything related to mortgages.
Actually Marge, FICOM does regulate credit unions and it is right on their web site. In this case disclosure should be imposed to them.