Mortgage professionals say they’ve had enough of clients going to the bank, with broker commitment letters in hand. As Vernon Clement Jones finds out, a growing number are thinking exclusivity agreements will stop them in their tracks
It’s like waiting for the other shoe to drop or, rather, a heavy hobnail boot ready to hit the floor with a thud.
“You’ve sat down with the client, done all the work and have got them the commitment, and then you wait,” Rick Somerville, owner of Dominion Lending Centres - Advanced Mortgage in Lethbridge tells CMP. “But what we’re seeing a lot more of is that clients take our rates to the bank in order to get a better one. It means all our work was for not, and it’s frustrating.”
It’s a lot more than that. Brokers from one end of the country to the other – including Somerville’s southern Alberta stomping grounds – are fed up with what they charge is the deceptive rate shopping of clients looking to score better interest rates with the banks and prepared to use the time and energy of mortgage brokers to do it.
The practice, encouraged by an increasingly aggressive Big Five, now prepared to undercut even the lowest broker channel rates, has sparked calls or the industry-wide adoption of exclusivity agreements. Although, the mere suggestion brokers penalize clients for opting to go with another lender is not without controversy.
“This topic is certainly a hot potato and with good reason,” IMBA President Albert Collu tells CMP, as the first to wade in. “Having said that, mortgage brokers across Canada invest much time and effort into providing sound advice and pricing for clients and are left uncompensated for those efforts when clients take all that work to their branch. I’ve often found it odd that
Realtors have implemented exclusivity agreements with clients and we, mortgage brokers, have not. With proper discussion I would be supportive of implementing such a process for mortgage brokers, but I would also like to see most mortgage brokers moving their sales focus off rates and more towards sound consultation and advice for consumers.”
The veteran broker, also president of Argentum Mortgage and Finance, is the first to publicly address the growing concern of brokers, increasingly finding themselves left at the alter by clients spirited away by the banks at the eleventh hour. But that’s only after those customers have won pre-approvals or, even, lender commitments through a mortgage professional. In fact, the defection is only made possible by the work of the broker, allowing the client to present a competitive rate to the banks, which then revise their earlier rates to undercut the broker’s rate.
The phenomenon has eaten up what some peg as tens of thousands of broker hours in the last eight months alone, time spent interviewing clients and preparing applications that ultimately end in frustration. It’s also re-ignited debate about “research” or “consultation” fees for A deals, something most brokers oppose as a threat to their credibility and industry market share.
“I certainly empathize with why brokers would want to use fees in this market,” says Beth Jeymans, a mortgage professional with VERICO KC Mortgage Services in Hamilton, Ont. “But it just wouldn’t work when an A client can walk into any bank without having to pay a fee.
Why would they pay a fee to a mortgage broker? I wouldn’t do it. I’d either go to the bank or another mortgage broker who isn’t asking me to agree to pay a fee.”
Supporters of exclusivity agreements argue that they avoid that kind of confrontation at the same time they help to protect broker incomes in this slowing housing market.
“It’s a good idea, and we’ve debated putting something like that in our agreements,” says high-volume broker Chris Bisson, with Complementary Real Estate Services – The Mortgage Centre, in Guelph. “But transparency is absolutely key here and the client would have to be fully appraised of what they are signing.”
A Toronto brokerage head has already introduced an exclusivity clause as part of his broker-client agreement, a way of protecting his agents’ time against “rate hunters” prepared to use it as a bargaining tool in pursuit of better bank rates.
“We don’t apply it to all A deals, but generally where we get a strong sense that the client is really not serious about using us and is really only looking to get a commitment to present to the bank,” Ranjit Dhillon, principal broker at CENTUM Mortgage Smart in Etobicoke tells CMP.
“The exclusivity agreement works both ways and, if the industry did introduce it as part of (best practices), we should promote it that way. Sure, it works to the benefit of the brokers, but also for the client in that the agreement is guaranteeing the client that the broker will work sincerely and assiduously to get the client the best deal, including, but not exclusively, rate. It’s also a tangible pledge of the broker’s professionalism.”
But commitment cancellations hurt more than brokers. A channel lender is endorsing the idea of client exclusivity agreements, arguing the time has come for an industry-wide discussion on those controversial but, perhaps, increasingly necessary contracts.
“Conceptually, I am supportive of exclusivity agreements,” says Boris Bozic, Merix Financial president and CEO. “I think it’s time the industry looked long and hard at implementing the practice. The broker’s job is not to just educate the borrower, however, that’s happening with greater frequency. As the saying goes, time is money. Brokers should have the means to be compensated for their time and effort.”
Collu is prepared to lead a provincial discussion on regularizing exclusivity agreements as a best practice, similar to those Realtor agreements that bind home sellers and buyers to their real estate agents for a contracted period of time.
Still, even well-intentioned client may balk at having to sign exclusivity agreements, says industry trainer Greg Williamson, initially sceptical about the efficacy of nationwide or even provincial adoption.
“I think what might happen is that the more experienced brokers and agents will be able to sell the concept to clients, but more inexperienced mortgage professionals may scare them off,” he says.
That could be averted, argues another broker, suggesting lenders like Bozic take the lead, by putting “teeth in their commitment letters.”
“I think it’s possible that we could face a challenge by consumer advocacy groups if we, brokers, look to make exclusivity agreements a best practice,” Ad Lakhanpal, a Mortgage Alliance Broker in Oakville, Ont., tells CMP. “Asking clients to sign them upfront is also likely to scare many away. But if the lenders were to readjust their commitment letters to include a penalty clause for clients if they cancel the deal and go to another lender, then that I think would be more effective in protecting brokers and lenders.. It’s also the easiest way to do it.”
In the absence of that tougher commitment protocol, Somerville and his team of agents are still left to grapple with the very real problem of clients who are prepared to use them as a stepping stone on their way to the better bank deal – whether it’s lower than the broker rate or, even, if only a match.
“We’re considering whether to introduce an exclusivity agreement ourselves,” he says, revealing the kind of exasperation so many brokers feel. We’ll see.”
