In an e-mailed statement to MortgageBrokerNews.ca, the Financial Institutions Commission (FICOM) said the improved disclosure rules would require “that brokers disclose the amount of compensation they received from lenders.” The change, it said, is a result of a shared interest in improved regulatory compliance and higher industry standards.
Front-line brokers, however, aren’t seeing it that way.
“There is already enough confusion around the mortgage broker industry, where clients don’t truly understand what we do,” says Tanya Anderson, a mortgage professional with DLC
Mountain View in Coquitlam, BC. “Then adding in the very complicated compensation and remuneration aspect for disclosure – it opens up extra questions that are difficult to answer.”
The concern is less about a potentially awkward conversation about money, Anderson says, and more about the confusion surrounding who pays for what.
“There’s already so much education that goes into the mortgage process; it’s already such a convoluted process for the client,” she says, pointing to the need for extensive documentation and the difficulty some clients have in qualifying for certain products. “[Fee disclosure] just adds a little bit of doubt, and we’re already handling sensitive information. It’s hard to factor all that in.”
Brokers are already required to disclose whether they receive a fee or a bonus from lenders, though they aren’t required to divulge the actual amount.
“I feel that the disclosure requirement that they’re wanting to bring in, I don’t think it’s necessary because the client isn’t paying [the fee],” says Donna Telep, a mortgage advisor with Seville Mortgage in Maple Ridge, BC. “It’s no different than if you walked into a furniture store – would you feel that the salesperson should disclose to you exactly how much they’re getting paid on that sale?”
Telep says her clients – most of whom are repeats and referrals – are fully aware that she gets paid by the lender. For clients who might be using a mortgage broker for the first time, though, the forced fee disclosure may inadvertently support any feelings of distrust.
“We’re going to run into clients who misunderstand how we’re paid,” Anderson says. “They may think that, by us making a fee, they’re getting a lesser rate. There are already rate shoppers out there, so it might add to that.”
Anderson says disclosing her fee to a client without explaining how she makes that amount could result in a rate-sensitive client pressuring her to buy down the rate.
“There are questions about how [the lender paying the broker fee] impacts them, and without getting into a monotonous explanation, the client won’t really understand how one lender may take five extra hits, but that is no different from the lender who is not,” she says. Anderson points to the many variables brokers consider when placing a client with a particular lender. She says the client could become fixated on the broker’s fee associated with that product, overlooking the broker’s reason for recommending it in the first place.
Telep, meanwhile, says this move could further increase the fierce competition in the mortgage space that’s pressuring many brokers to buy down rates.
“We’re competing with other brokers for the business, plus we’re competing with the independent banks,” she says, adding that the bank agents are exempt from these updated disclosure rules. “This is going to add another layer of confusion and make it that much more difficult for the independent brokers.”
That double standard could lead some clients to question why banks aren’t required to disclose, Anderson points out, potentially setting up a foundation of distrust.
“I think, in this case, it is going to add a bit of extra doubt,” she says. “Clients might think, ‘My banker doesn’t have to do this, so maybe they’re more trustworthy than my broker.’”
FICOM claims the updated requirement will better protect homebuyers in British Columbia by way of increased transparency, but Anderson and Telep don’t see it that way.
“With clients being so savvy nowadays … the need for that extra layer of protection in unnecessary,” Anderson says. “When you add in the layer of what the broker is paid without explaining it, you just add confusion. I don’t think it’s saving the client; I think it’s just adding an extra layer that didn’t need to be there.”
Mortgage brokers in British Columbia could soon be required to loosen their lips when it comes to how much they’re paid, and some originators fear that might sink ships as stunned clients demand bought-down rates.