Broker calls for level playing field

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After reading about a perceived double standard in the mortgage industry, one industry player has called for more oversight for one particular group of professionals.

"Its the same old double standard which we all know exists ... validation of debt servicing and other critical 'conditions precedent to advance' on broker origination (versus branch origination) is always held to a higher standard," one MortgageBroker.ca reader wrote. "Brokers should hope that OSFI actually implement thorough audits of branch-originated mortgage files."

A trend is developing south of the border; lenders are bending rules for wealthy clients who, technically, do not meet updated – and stricter – lending requirements, but that isn’t the case in Canada … at least for brokers.

“In my experience lenders really like to do their due diligence (regardless of how wealthy a client is),” Ivan Cermak of Verico Manifest Mortgage Corp. told MortgageBrokerNews.ca. “As far as the most wealthy individuals, every ‘T’ must be crossed and ever “I” must be dotted but I still get the deals done.”
In January, the United States government introduced new qualification standards for mortgage lending, including “jumbo loans” – mortgage loans that exceed $417,000 in some areas and $652,000 in others.
According to the Wall Street Journal, lenders shied away from deals that didn’t meet the updated rules, but that is now changing – especially for wealthy clients.

“We see an under-served market of people who have excellent credit and strong income but have had a lot of debt,” Brian Simon, COO of Pennsylvania-based lender, New Penn Financial told the Wall Street Journal.

New Penn Financial has established a new “nonqualified jumbo mortgage” product that allows for a debt-to-income ratio up to 55 per cent. Under United States federal rules, borrowers can’t have a DTI in excess of 43 per cent.

However,  lenders who skirt the rules put themselves at risk, according to the WSJ, because they are not protected from lawsuits filed by mortgage holders who default. 

Such workarounds have not been established in Canada, say brokers – at least not in the broker channel.

“Branches seem to make more allowances than brokers,” Cermak said.

He echoes sentiments that are all-too familiar in the mortgage broker industry.

“I work with major banks and they challenge I find is that some clients I bring to them are denied a mortgage only to be approved when they go into a branch themselves,” Avijit Ghatak of Centum Home Loan Inc. told Mortgagebrokernews.ca in June. “Underwriting on the broker side is much tighter; our clients may get denied by the lenders but they get approved by the banks.”
  • Adrian on 2014-10-23 1:58:08 PM

    Yep, this is a trend that I am experiencing.. No on my desk but yes at the branch. I'm not sure what more the banks that are still underwriting broker deals) need to do to tell us they no longer want our business.

  • AnthonyC. on 2014-10-23 2:51:36 PM

    Its the same old double standard which we all know exists...validation of debt servicing and other critical "conditions precedent to advance" on broker origination (versus branch origination) is always held to a higher standard...brokers should hope that OSFI actually implement thorough audits of branch-originated mortgage files for BFS and high-net worth borrowers...and if so, i'm certain that they will uncover many files which should not have been booked, were the branch to adhere to OSFI requirements.

    Just last month I lost a bank-approved file (whose bank name by the way rhymes with "smational"...god bless them) and was a fully qualifying BFS Income with add-backs, for a high net worth client's $1MM+ purchase with a LTV of 75%, to their own RBC branch, shortly after I had requested d.p. confirmation...the branch previously declined the file due to a high TDS ratio...I got the TDS down to below 44 with legitimate add-backs (client's bureau was reporting three vehicle leases, paid for via her company).

    After she had downloaded her corporate/personal statements via her online banking, she received an "unsolicited" call from her banker, whom she then informed ( i guess to rub it in) that her financing was approved via my efforts, and to which then said banker miraculously was willing to make an "exception to the rule" and offered her an approval with a lower cost of funds (shaved 10 bps from my fixed rate) which to my regret, she accepted.

    All in a day's work folks...keep on smiling...

  • Kate on 2014-10-23 5:50:46 PM

    Yes, Antony, it is an experience shared!!
    Having worked at a bank, I saw deals that were put together because the clients were wealthy, or a professional ,, creative financing, I believe is what they called it!!!! The bank did not want to loose potential business from the client, so steps were taken to solidify the business. hmmm,
    it happens all the time!!

  • rhéau on 2014-10-27 2:27:03 AM

    lost a client and a friend of 50 years for the same situation,and also a commission of $7,000.00.

  • rhéau on 2014-10-27 2:27:07 AM

    lost a client and a friend of 50 years for the same situation,and also a commission of $7,000.00.

  • Brian on 2014-10-27 7:01:14 AM

    Had a Lawyer noway he qualified to purchase the $450,000 Recreational Home even with 20% cash down. Lo and behold a Bank off the 401 got him 95% CMHC financing! The Mortgage Officer put EMILI to sleep on that one. Hope that Branch is audited soon.......

  • Brian on 2014-10-27 7:01:16 AM

    Had a Lawyer noway he qualified to purchase the $450,000 Recreational Home even with 20% cash down. Lo and behold a Bank off the 401 got him 95% CMHC financing! The Mortgage Officer put EMILI to sleep on that one. Hope that Branch is audited soon.......

  • Janice Ashworth on 2014-10-27 1:45:42 PM

    It is very unfortunate that these incidents occur and hopefully the new OSFI audits lessen the frequency of these types of things from happening. I find it more annoying when a client has us do all the work on a new mortgage or a renewal and then they go to the bank or the bank calls and the rate is matched. Allowing a refundable fee to be charged would lessen these incidents. I have great, loyal clients that respect my time and appreciate my knowledge who realize I work on commission - but it does occasionally happen. I will say however - I have been referred many more mortgages that qualified quite easily that were turned down by a branch due to lack of experience or unavailable mortgage product(s) to suit the file. These cases are the ones that show the need for experienced, knowledgeable mortgage brokers on all files not only poor files. So - it works out in the end - often better in my case.
    Janice Ashworth - Mortgage Specialist - Jencor Mortgage Corp.

  • Broker on 2014-10-27 2:15:44 PM

    I do about one deal a month... with the same bank, that has already declined the client at the branch level. You should see the confusion on the clients face when I am able to present the paperwork in front of them. Sometimes it comes down to proper packaging of a file but in my case, my experiences have been opposite.

  • Broker on 2014-10-27 2:16:43 PM

    Opposite from the article in the fact that the branch says no, and I am able to say yes.

  • Keith on 2014-10-28 5:28:58 PM

    This is not a criticism of anyone in particular, but if the banks (TD, Scotia) are as seemingly as difficult to deal with because the branches continue to compete (unfairly according to some) as so many brokers continue to lament on this forum, why do you insist on sending them business?

    I haven't used either for over 5 years, and it has not hurt my business at all. I have never run into a customer that has told me "I must deal with X Bank". Before anyone pops up with a "you probably don't do much volume". When I started in this industry in 2006 I, like most people, did about 5 million in volume. I now do 10 times that, still without sending business to the banks. I send it all to broker only lenders.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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