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Mortgage Broker News | 04 Apr 2016, 05:00 AM Agree 0
New rules may be coming – which means brokers are focused on cancellation fees once again
  • Lakshmi Lewis | 04 Apr 2016, 10:46 AM Agree 0
    I agree that the client should be charged a cancellation fee.
  • Layth Matthews | 04 Apr 2016, 12:12 PM Agree 0
    On the one hand, the case for cancellation fees is made stronger by the fact that brokers endure increasing real costs for credit checks and other documentation required by lenders associated with completing an application. Also, in recent years, lenders have begun tracking application to funding ratios, which has real economic consequences for brokers who lose deals after submission for underwriting. So losing a deal can serve to reduce a broker's access to lenders, favorable rates, and terms that we are able to offer subsequent clients. Plus the opportunity cost of wrestling with a deal for weeks vs. focusing on business building is probably most significant. The most frustrating situation is when a client takes all the documentation and strategy you have coached them through and uses it to enable shopping and negotiation with competing offers!

    On the other hand, the industry compensation is structured to make up for a certain amount of false starts.

    I think brokers should be free to charge a fee within limits, if clearly disclosed in advance, i.e. more like symbolic speed bump for clients than an alternative compensation stream. I would not want to suffer the consequence of potential borrowers hesitating to contact a mortgage broker for fear of hidden and unpredictable fees. It would be better if it was called a documentation or application fee rather than a can cancellation too! Keep the punitive innuendo out of it.

    One solution might be to facilitate client payments for credit bureaus and other hard costs, like appraisals are set up now. Then the broker can at least avoid eating the hard costs if a prospect goes away. And the client gets at least a little economic feedback on their actions instead of a total free ride. The broker could then offer to reimburse these costs to clients from finder's fee proceeds after the deal funds on a case by case basis.
  • Warren Ross | 04 Apr 2016, 03:04 PM Agree 0
    I think both banks and brokers should have the requirement to charge fees.
    If brokers charge a fee, and banks don’t, guess where the clients would be going?
    In fairness to the client, I think all clients should be allowed a free consultation. However, once you ask someone to move forward to get you a mortgage and do the work from A-Z, there should be financial consequences if the client backs out.
    That being said, not all deals are created equally, and there should be tired pricing on our services.
    For example, a fee should be charged if we do a preapproval, and client doesn’t purchase within the rate guaranteed period. This could be a nominal fee like a couple hundred dollars.
    If a client purchases a home, and we get them an approval, and they back out because of problems with the property, we should be compensated for our work. The home inspector gets paid whether or not it’s a good inspection, so should we. I would suggest a fee of $500.00 since it is more work than a preapproval.
    If a client purchases a home, and chooses to go to another lender or broker within our mandated period to close a purchase, I believe we should be compensated for our full commission.
    On a refinance, we often work with clients on best case scenarios. Often times we do all the work, and the deal is killed because the client was imagining a pie in the sky valuation. On a refinance file, simply for working on it, we should be guaranteed $500 to $1000.00. If the client goes to another lender, we should be guaranteed our commission as long as client takes a new mortgage within the mandate period.
    To protect the client’s, we should have comments in our mandate that say what we are trying to achieve, what is the likelihood of achieving the desired outcome, and what the risks are. For example, if the risks to a deal is the appraisal, we should mention that. If the client agrees and asks us to go forward anyways, I don’t see why we shouldn’t be compensated if the client doesn’t get the desired appraisal.
    Since mandates would increase 100 times, perhaps we could set up an adjudication board to mediate any conflicts in regards to mandates.
    In closing, none of us should work for free, and we can still look out after the publics best interests.
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