New regulations for mortgage brokers give borrowers a fuller picture on loans
JOANNE LEE-YOUNG
The Vancouver Sun
B.C.’s Ministry of Finance will introduce tougher guidelines for the approximately 3,400 registered mortgage brokers it oversees in the province.
Brokers will have to disclose the specific dollar value of any regular commissions they make. In addition, there is now a longer-than-expected list of non-monetary items and interests that must be revealed by a broker to a borrower about what he, she or the firm they work for might gain in taking a deal to a certain lender.
In sum, borrowers will have a fuller picture about why a loan is presented to them by a mortgage broker. These brokers connect clients, who want to borrow money for buying a home, to networks of lenders that include banks and credit unions, but also institutional lenders who do not take deposits, and individuals. They are supposed to help clients shop around for the best rates and service and, generally, act in the best interest of a borrower.
However, some brokers are upset about having to disclose basic commission amounts and argue that most borrowers focus on the rate they are able to find and not what they make on each deal.
Where things will get more complicated is how these new disclosure requirements reveal the kinds of conflicts that can be unknown to a consumer and are, sometimes, even challenging for individual brokers to calculate.
In some cases, brokerage firms are receiving lump sum payments, also known as “access fees,” in return for passing borrowers to a preferred lender. Brokers themselves may not be aware that aside from bonuses they can earn based on volume of completed deals passed to one lender, their employer is taking another cut.
Chris Carter, acting registrar of mortgage brokers at the province’s Financial Institutions Commission or FICOM, described the list of interests that will now need to be disclosed as a “non-exhaustive” one.
“We want brokers to be fully describing their conflicts, so we didn’t want to be prescribing what those might be,” he said, adding that all the new guidelines were prompted by conflicts of interest found by FICOM in actual cases. “You can assume the (situations described) aren’t hypothetical.”
Samantha Gale, CEO of the Mortgage Brokers Association of B.C., said she understood the rationale of the Ministry of Finance.
“They saw escalating house prices and they are concerned about debt,” Gale said. “There has been a call on all levels of government-municipal, provincial and federal-to take action and to do something.”
She said mortgage brokers are unhappy that the new disclosure guidelines will put them at a competitive disadvantage when consumers compare them against mortgage specialists who work for banks. Mortgage specialists are not regulated by FICOM and will not be subject to these new rules, said Gale.
However, she added the new guidelines “are more onerous than we had expected. We would have liked a more gradual approach, one that sought consultation with key stakeholder groups.”
To illustrate the nuances that might have been gleaned from doing this, one broker explained that if he takes ten deals to one lender, he is more likely to get better service on a “sticky” deal in that bunch that otherwise would have been challenging to complete. This might be seen as going against the ideal of seeking the best deal for every individual loan applicant, but there can also be upside for a borrower when brokers have ongoing relationships with certain lenders.
Carter said: “That’s the entire point. To shine a light on the mechanics of how this works so the consumer has tools to understand the difference between lenders and to ask ‘what is influencing your advice? Do you have preferred lenders? How does it work?”
“Our fundamental belief is that this is about transparency and we have confidence that brokers can and will explain their structures.”
The new rules, which will be effective on June 30, 2017, come after Ottawa last month brought in tighter mortgage rules that make it harder than before to qualify for home loans and after intense scrutiny in B.C. over conflicts of interest in real estate transactions. But the process of developing them actually “predated these recent developments,” said Carter.
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