Broker advantage eroding?

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Brokers have traditionally had the advantage of lower prepayment penalties than their big bank counterparts, but many channel lenders are getting more aggressive with their calculations.

“There have definitely been some changes in the broker channel with lenders trying to stay competitive with the banks; a lot of them have come out with basic mortgages as a result,” Robert Speakman, a GTA-based agent with Dominion Lending Centres, told MortgageBrokerNews.ca “They often charge higher (prepayment) fees.”

The concerns largely stem from banks in the broker channel. Although brokers have pointed to instances where monolines have taken a more strenuous approach to meeting out penalties.

In one recent case, a broker – who asked to remain anonymous – was surprised by a $7,424 fee his client was forced to pay based on the bond yield at the time of payment, and not the bond yield the rate was based on. He emailed the lender – a schedule I bank – and asked it to recalculate the fee.

However, the lender pointed to a clause in the contract that allows for a 0.75% bond premium to be added to prepayment penalties.

“The 75 basis point addition is standard as part of the calculation. This same calculation is explained in the disclosure document that the customer agreed to at the time of obtaining the mortgage,” a rep wrote to the broker in an email response. “As such, the Earlier Prepayment charged during the payout process is accurate and will not be modified to include the 221 basis point addition.”

IRD calculations within the broker channel have been a hot topic lately.

One broker shared with MortgageBrokerNews.ca last week a case in which his client was forced to pay three months’ interest on a mortgage that had a month left.

Gregory Campbell, a broker with Campbell Mortgage Brokers, told MortgageBrokerNews.ca last week about a client who owed a daily rate of $26.48 in interest which, over the 32 days left on the contract, would have meant $847.36 in earned interest for the monoline lender.

But the client was forced to pay $2,416.28. That penalty calculation was outlined in the lender contract.

Still, it appears the advantage brokers once enjoyed regarding prepayment penalties may be eroding.

For his part, Speakman argues it’s up to the broker to put together long-term plans for clients, which include advice on what sort of penalties can be incurred. 

But even with anecdotal complaints about hefty IRD penalties stemming from some broker channel deals, originators remain convinced that they continue to hold an advantage in that area. They point to monoline calculations that simply offer the industry's best, and least aggressive, methods for calculating early cancellations, before maturity.
  • welbanks on 2015-09-14 9:53:46 AM

    I'm sure there's reason for it, but it would be more helpful if the article included the offending lender. Please feel free to contact me separately if you have the info on that bond premium penalty - lee@welbanks.com

  • Vince Gaetano on 2015-09-14 10:13:52 AM

    If MortgageBrokerNews.ca wants to provide value to the community it would be very helpful to provide details on the lender and product type. Being vague has no value and quite frankly creates a discussion based on assumptions and unknowns.....what's the concern about discussing a specific lenders terms and conditions? It's proper reporting!

  • Paul Whatmore on 2015-09-14 11:16:32 AM

    Thank you Vince.

    Broker advantage eroding??? Really??? I don't know where you are coming up with this concept. There was a time when 4% of all mortgages were broker originated. Today I believe that number is greater than 25%. If a bank wont disclose to you and TD Bank doesn't then talk to First National they do disclose and they will take 1 off deals from you. You don't have to be married to them although their service might convince you otherwise.

  • Walid Hammami on 2015-09-14 11:43:41 AM

    Mortgagebrokernews.ca does not want to hurt any lender's business.

    If there is one thing that we need to take from the article it is we have to be more informed about penalties.

    I have to add that I always ask the BDMs about the penalties and some of them just say "it's the standard way of virtual lender, it's based on the broker's rate not the posted rate like the banks"

    What we will need is a full documentation about the all the fineprint clauses that are on the contract.

    If we are not that informed then it is true that our advantage is eroding even further.

    I wish that the superbrokers (DLC, Verico, Centum etc..) weigh in in the matter.

  • Matthew Hines on 2015-09-14 3:41:42 PM

    I would like to know if the details pertaining to the penalties were detailed on the commitment the broker would have gone over with the client or was it on the docs signed at the lawyers' office.

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