The Time is Now

We must give consumers a reason to work with brokers over bankers, writes Trevor Daly

The Time is Now

Our industry leaders must begin to act and to take control of what it means to be a mortgage broker.   

Most mortgage brokers can hold their heads high, however, a small percentage of brokers deal in private mortgages without having the sufficient experience. It is incumbent on each mortgage broker to invest the time required to fully comprehend what each lender will offers their individual clients. This can be a very daunting task; however, it is necessary as we must give consumers a reason to work with a broker over their usual bankers.  

Brokers lacking this in-depth understanding of the products they sell run the risk of placing their clients in unsuitable products. A broker must be fully aware of their client’s situation and future plans. This can be accomplished by proper client interviewing and completing your Client assessments. This process aids in the clients’ overall mortgage knowledge and educates them to pay down their mortgage faster, while still having the financial freedom to enjoy their lives.    

I started in the mortgage industry working for a bank as a mortgage specialist and as such, was educated on one product only. When I came over to the broker channel 12 years ago, I found myself overwhelmed by the number of products and solutions I now had available to offer to clients. In order to meet the needs of my clients, I spent countless hours educating myself by meeting with lenders and reading background material. Most importantly, I asked questions when I was not sure or felt I had gaps in my knowledge. 

As a result of the recent changes in the mortgage lending rules, the mortgage space has begun to see more private lending deals. This is oftentimes a problem, as many brokers who lack training and education with institutional lenders will likely lack the ability to process a privately funded mortgage given the fact that private mortgages have many nuances to do with the qualification of a file as to such matters as terms, fees and what the closing process will look like. When a broker and their client decide to obtain a private mortgage, the plan should be set out from the beginning and steps planned or a road map drawn up for the client so that they fully understand the transaction. If a broker is not educated on private financing, how should the broker expect to educate his or her client? 

Syndicated mortgages are one hot button issue that has sprung up within the private mortgage space.  Syndicated mortgages – products with more than one investor lending on a mortgage -- were beset by a lack of transparency with investors as a consequence of the lack of education surrounding this process.  For example, I have heard of instances where mortgage investors were led to believe that their investment was a first mortgage, while the small print of their investment contract included the proviso that their mortgage positions could be deferred to a lessor position, thus increasing the risk involved with their investment. 

When dealing with a mortgage investor or when dealing with a borrower, it is most prudent to always strive for the highest level of transparency and understanding by the investor or borrower. A broker will typically accomplish this with borrower and investor disclosure documentation and brokers need to ensure that these documents are understood by the mortgage borrower or investor.  What lies at the heart of the lack of transparency among many brokers is  broker compensation.  Typically, mortgage brokers have to charge their own fees for arranging a mortgage with private investors. The fee can vary for each individual transaction, thus creating the opportunity for unscrupulous brokers to take advantage of their clients.  

As a result, I am calling on our industry to cap brokers’ fees on private lending files at a maximum of 1.5% with a recommendation that investors follow suit. I am calling on our industry to invoke minimum monthly hours of training. Why? Because the time is now for our industry leaders to act and take control of what it means to be a mortgage broker. Dear agents and brokers: the time is now to focus on training and your own value proposition so that you can be the best mortgage broker you can possibly be.