By Bud
Jorgenson, VP.TMG Prairies
Mentor of
the Year, 2017, Mortgage Professionals Canada
What’s best for consumers?
We need to clear
the air. We’ve recently come across marketing materials that some Bank mortgage
specialists have been sending aimed at “educating” members of the public on the
impact of the mortgage rule changes and the limitations of dealing with
mortgage brokers. Some bank specialists
are referring to mortgage brokers as sub-prime brokers and that the recent
changes to the mortgage rules will negatively impact us. As mortgage
brokers we would like to respond.
We agree that
it is vital for Canadians to be educated on the ways in which the most recent
mortgage rule changes coming into effect, and all recent regulatory and
legislative changes will impact mortgage consumers and markets as a whole. We applaud all efforts to bring awareness at
this very important juncture in our industry.
The Office of
the Superintendent of Financial Institutions (OSFI) is an independent
government agency whose mandate is to supervise federally regulated financial
institutions. OSFI is the agency who is
updating their B-20 underwriting guidelines that came into effect on January 1,
2018.
In addition to
having access (directly or indirectly) to most of the major Tier 1 banks in
Canada, mortgage brokers also have access to many other provincially-regulated
and private mortgage lenders. Those lenders include Credit Unions, Monoline
mortgage lenders who have funded hundreds of billions of dollars in aggregate
(including First National, MCAP, Merix, Street Capital, etc) alternative
lenders (Canadian Western Bank, Equitable Bank, Home Trust, etc.) and private
lenders.
This allows brokers to ensure
that the features of the mortgage are aligned to the client’s needs. Brokers
will look at prepayments options, how penalties are calculated, how the
mortgage is registered and how the client credit fits against the available
products.
Perhaps it is
only semantics but when a customer deals with a broker they do not have to
‘negotiate’ a rate with the lender directly – the broker shops the market to
secure the best overall cost of borrowing for the unique needs of the
consumer. This competition maximizes the
opportunity for a consumer to get the best overall deal.
The recent OSFI
changes are actually targeting all consumers (including the federally regulated
banks) rather than only the subprime market. In fact, it may create market
share opportunities for subprime lenders.
We certainly agree on the need for consumers to get the best advice. A
mortgage broker is licensed with their corresponding provincial regulator. They
have to meet initial education and licensing requirements and then have to
maintain educational requirements going forward. Given the breadth of lender
and mortgage products available to brokers, they have to constantly do research
on the options available to their clients.
Brokers also get to deal with large regulated banks. Sometimes that represents
the best option for the client to consider. Other times specialty lenders,
mono-line lenders and unregulated lenders represent the best interests of
consumers.
Broker market share has actually increased steadily since the onset
of the Global Financial Crisis and with each additional mortgage rule and
regulation changes. This is because brokers are best suited to assess a
mortgage client’s needs and then access a number of market options to fit those
needs.
Myth: With the
broker channel, the goal is to move the mortgage on each renewal
Reality: The goal of the broker channel, in general, is to present
multiple options to consumers so they get the optimal mortgage for their unique
needs. That includes looking at prepayment options, type of mortgage charges,
costs of borrowing, portability, etc. Brokers
often advise their clients to stay with their current lender at renewal. The goal at renewal is exactly the
same. The result of providing clients with the best ongoing advice at the time
of origination and at renewal, a broker is able to grow their referral
networks.
Myth: If the client remains with the same lender at renewal a small
trailer fee is paid to the broker.
Reality: This is true in some cases and creates accountability
between the lender, broker and customer in those cases.
Myth: If they (brokers) move the mortgage to a new lender then the
full mortgage commission is paid as it represents a new deal to that new
lender. This becomes a “residual or passive income” source for the broker.
Reality: If a client chooses to move their mortgage at renewal
after being given the options then it is considered a new deal. As such it has
all the corresponding work associated with any new file at that time. That is not residual income – it is earned
income and in most cases paid by the financial institution receiving the
mortgage, NOT the client.
Clients save money when
they work with a mortgage broker at renewal
The Bank of Canada released a
report a few years ago titled “Competition in the Mortgage Market” and found
the following:
“Banks also offer
larger discounts to new clients than to existing clients. Consumers willing to
switch financial institutions when shopping for their mortgage will see, on
average, an additional discount of 7 basis points from the posted rate. The
results also indicate that borrowers who use a mortgage broker pay less, on
average, than borrowers who negotiate with lenders directly. This average
discount is about an additional 19 basis points.”
Most mortgage brokers offer
ongoing advice and information to their clients. Because they deal with a wide
variety of lenders for unique circumstances they are often very well versed in
issues affecting mortgage borrowers.
For example, as of January 1st,
a bank rep may tell you all uninsured mortgages have to be qualified at the
benchmark rate or 200 basis points (whichever is higher). What they mean to say
is all their mortgages are qualified in that manner.
It may be that a bank may be the
best option for many clients but other lenders, credit unions for example, can
still qualify the borrower at the contract rate.
By working with a licensed mortgage professional, you have a
trusted advisor and problem solver, who is best positioned to navigate these changes.
Brokers take the time to first
understand a client’s needs, both short term and long term, then recommend the
right mortgage and present options. As the lending environment changes, brokers
keep up-to-date with all these changes and have access to a variety of lenders
including banks, credit unions, trust companies, monoline lenders and private
lenders. No one is more knowledgeable and more informed than we are.
