Broker: Time to talk advance fees

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A leading Ontario veteran is calling on the provincial regulator to level a very lopsided playing field by allowing brokers to charge upfront fees on deals falling short of the current $300,000 threshold.

“What we have now are big-market-centric regs where brokers in smaller, lower-priced markets are not allowed to charge fees up front on deals that might be difficult and very time consuming because the mortgage has to be for more than $300,000,” said Glenn May Anderson, a veteran mortgage broker and now director of franchise development for Dominion Lending Centres. “In big markets where mortgage amounts are higher, that’s not a problem, but in smaller markets with lower average prices that prohibits brokers from being able to do what their counterparts elsewhere can.”

May-Anderson’s comments come as the provincial regulator FSCO readies for its review of mortgage broker regulations ushered in five years ago. A large part of that process is soliciting brokers for their take on what can and, in fact, should be done to improve those rules.

Under the current Act, collecting advance fees for mortgages if the principal amount of the mortgage is $300,000 or  less is prohited and “the Mortgage Brokerage cannot require or accept an advance payment/deposit for services to be rendered.”

While charging fees is all but unheard of for standard A deals, brokers are expected to increase their use as tighter guidelines force a growing number of borrowers into the alternative lending space.

Advance fees could prove to be an especially useful tool for mortgage professionals in small town Ontario now pouring hours of work into complex Alt A deals with only a small finder’s fee waiting for them at the end of a lengthy process.

Allowing them to collect advance fees would also better position mortgage brokers as financial service professionals, suggested May-Anderson, open to lowering the $300K threshold or doing away with it altogether.

“We create a lot of value,” he told “The definition of a professional is someone you have to pay even if you don’t take their advice.”

  • Ken on 2012-04-18 7:24:44 AM

    And why the upfront fee ??? Go ahead DLC - charge the up front !!! Being in small town Ontario I have never charged any fees on a residential mortgage. Our competiton is - oh wait , there isn't any when you have the best service and the best rtaes. Sure we could charge because of the above, but then we would be like DLC .. No thanks

  • Ken on 2012-04-18 7:24:45 AM

    And why the upfront fee ??? Go ahead DLC - charge the up front !!! Being in small town Ontario I have never charged any fees on a residential mortgage. Our competiton is - oh wait , there isn't any when you have the best service and the best rtaes. Sure we could charge because of the above, but then we would be like DLC .. No thanks

  • Ron Butler on 2012-04-18 7:55:29 AM

    I think if we are going to be paid for giving advice we should give up our broker licenses open a different company and hang out a "mortgage advice giver" shingle. Then see how that goes.

    If we say we are arranging mortgages let's arrange the mortgage and get it funded and then get paid. What's wrong with that concept? I have never taken one penny in up front fees in 17 years and originated over a billion personally. I have charged about 4 Million in broker fees in that time on Home Trust and our private mortgage book. I think we can all make a fine living only charging for what we accomplish and not charging for advice.

    I understand charging up front fees on commercial deals, its a requirement; but I don't see it on residential deals, if the deal is going to be too tough to place, don't work on it. Direct the client to someone who can get it done.

    Charging up front fees on residential mortgages is a bad policy, failing to place the mortgage and keeping the fee leads to consumer FSCO complaints and media investigations which reflect badly on our industry.

  • Paul Mangion on 2012-04-18 7:57:31 AM

    I second the motion.

  • Craig Pritchard on 2012-04-18 8:09:49 AM

    As a broker who recently moved to London, ON (from Kitchener)I have to agree with you Glenn. My average mortgage amount has been reduced significantly with the difficult ones not getting any easier.

  • Lou Perrotta, CPMB on 2012-04-18 8:59:23 AM

    Mr. May-Anderson is absolutely correct that the arbitrary threshold of $300,000.00 prejudices licencees who deal in small municipalities or rural areas in Ontario in which the loan amounts are almost often significantly less than $300,000.00. However, I would extend the prejudice to licencees who deal in second mortgage loans. These types of transactions tend to be the most complex and are the most time-consuming for licencees in which to be involved.

    These transactions often are not successful because of the lack of equity in properties, or the cost to provide successful financing is often disproportionate to the loan amount being borrowed. It often takes the same amount of work and third-party costs, such as a lawyer’s fees and an appraiser’s fee, to close a $30,000.00 second mortgage loan as it does to close a $300,000.00 first mortgage loan. Assuming total costs of $4,000.00 for either loan, the sum represents 13.33 % of the smaller sum and 1.33 % of the larger sum.

    We must identify and establish a process that is equitable to both borrower and licencee. A licencee needs to know that a borrower is committed. A borrower needs to know that a licencee can legitimately meet the borrower’s needs, within acceptable lending parameters. The gunshot, or search-and-destroy approach, by both borrower and licencee does not benefit anyone. It’s an absolute waste of time, resources and cause of frustration.

    My solution to the problem is in line with Mr. May-Anderson’s suggestion, although I would structure it as a good-faith deposit rather than an advance fee. The deposit can be credited towards costs if the transaction is successful. If the licencee cannot meet the borrower’s needs, or does not accept a modified offer of financing, the deposit can be refunded to the borrower. The fine details can be ironed out if the concept is palatable.

    I believe that we must also revisit the process and timelines for receiving commitments from investor/lenders before committing to borrowers. What’s wrong with having the timelines run concurrently for the commitment periods? The commitments from both investor/lenders and to borrowers would permit revocation in the event of conditions not being met, which they now do anyways. How often do we receive applications from borrowers who have desperation in their eyes because of the urgent need to put mortgage financing in place…yesterday?

    I believe that the stakeholders who will be involved in the forthcoming review of the MBLAA must emphasize the need to refine the regulations so that they do not disadvantage licencees, but at the same time, maintain protection for consumers. Our livelihood depends on it.

    See you at the IMBA 2012 Conference and Trade Show on Friday, April 20th.

  • Robert Stanfield on 2012-04-18 9:14:34 AM

    I do not agree with charging for advice or simply just meeting with a client. You need to earn a clients business. What I have discussed with FSCO and wouldn't mind doing is charge a retainer fee that is NOT refunded if the client does not close the mortgage with me and the client leaves after I have educated them, got the mortgage approved and then they take all my education and lenders commitment and go to their bank and educate their loans officer at the bank so he/she can get the deal done when they weren't smart enough to get it done in the first place. In this type of a scenario I think we should be able to chage a fee as the client did benefit from our service. If you deal with any other business and leave after the job has been done, you will and are charged for services rendered. This happens to me very seldom, but it would be nice to make some money from the jerkoff clients that have no intention of completing the transaction with you. In this scenario, when the mortagge funds, you would reimburse the retainer.

  • Only DLC on 2012-04-18 2:00:04 PM

    Onlt a DLC broker would come up with a request like this! This is taking the industry back 20 years back!

  • Glenn May-Anderson on 2012-04-18 2:22:04 PM

    Messers. Stanfield and Perotta, you have directly hit upon the notion of what I was inferring when interviewed for the article above. I am in no way advocating "application fees" for every mortgage, nor am I suggesting that we should all be charging additional fees for our services in advance of getting an approval. Others above seem to be missing my point, which is quite simply, if you are going to permit a fee to be charged in advance, then to restrict it to a certain mortgage size is unfair to all brokers and agents.

    When interviewed by Mr. Clement Jones, I specifically indicated that there are some cases where, if I have worked hard for a client in putting together a complicated deal, yet they walk away from it for no good reason, I should have the ability to charge them a retainer should they wish to use my services again, on the understanding that I would reimburse the funds if the deal funded. I am not supporting the "gouging" of customers. It should also be pointed out that there are currently NO restrictions preventing any broker or agent from charging a client additional fees on the funding of their mortgage, as long as these fees are properly disclosed, and even if they are funded through an "A" lender. So, for individuals in this industry to "call me out" because I am highlighting unfairness in government policy simply reflects misunderstanding on the part of those individuals, unless they are advocating for different rules based on different regional and financial considerations in terms of the implementation of the Act and its Regulations.

    Honestly, am I to understand that the individuals criticizing my comments have never dealt with "difficult" clients? Those who don't listen to you, or who leave out key details during interviews? Those who would waste our time, as we get them better rates and products, and provide them with far better advice than many of our banking counterparts, only to have them return to those banks when they call and offer our clients a rate we can't begin to touch? Does no one else out there believe we provide a value to our clients, and that we deserve to be compensated for that value we add? Perhaps advance deposits would encourage clients to complete their transactions with us in bank-competitive situations. They are used constantly in the commercial mortgage world, to ensure the potential mortgagee is serious about pursuing financing for their business, property, or project - why do we not believe we have the right to insist on the same level of commitment from our retail customers?

    I'm not suggesting everyone charge advance fees - on the contrary, we are all independent business people, free to do as we see fit within the boundaries of the regulations. I'm only suggesting the playing field is not level. Just because we have the ability to do a thing does not mean we must do a thing.

    Also, to be clear, my views are personal, and do not necessarily reflect the views of Dominion Lending Centres, its Agents, Brokers, or Franchises. To suggest they do, "Ken," is an act of disingenuous cowardice on your part to create a negative image that is not deserved.

    Finally, if the regulator believes advance fees should never be charged, then let's see that reflected in the Act and its Regulations - for ALL mortgages. Or, let's see different regulations for Commercial mortgages. Either way, let's at least get some consistency, and not have these unfair elements cloud the rules.

  • Kevin on 2012-04-19 12:21:49 AM

    Let's for a moment think of the inherent issues that exist in our industry, in a shrinking broker market share due mainly to competition and public perception about what "WE" as Brokers do, the idea that we "take money upfront" well is absurd. It would be great to think that all of our brethren operate the same way however, the facts simply don't bear out that reality, if it did we wouldn't need FSCO and regulations. Could you just imagine the headlines and the ammunition that we would hand to the big banks, it would be well ouch. I am a former mortgage specialist and I will tell from first hand knowledge that they are conditioned to bash us at every opportunity...we are the vermin, the thing most wrong with the Mortgage Industry, in their opinion. The idea that we be allowed to take "money up front" would be laughable if not so damaging and obscene. Ladies and Gentleman of industry we should be holding ourselves to a higher standard in order to win the public perception fight. So I agree that there should be a level playing field, disallow all "upfront money" no limits and no exceptions. You want to have the client pay for the appraisal at the door fine, but advance fees are idiotic in my opinion. The potential for abuse, misuse and misunderstanding by the public at large plays into a narrative that we need to quash at all costs thus making the idea not worth the risk.

  • JM on 2012-04-19 1:09:36 AM

    This is one of these scenario's where one can go into long debate over and have good reason in doing so. After respectfully taken all comments above into consideration the bottom line is surely Robert Stanfield is correct and further more this issue should be addressed above all else. When a broker or an agent spends a huge amount of their valuable time working hard and providing an excellent service and having a commitment in hand (this is the key here) from a lender only for someone in a split second to turn around and say I don't need it or want now.

    Mean while the person or persons who have been working on behalf of the lender have had their valuable time wasted as has the agent or broker who has just had their valuable time wasted. But here is the difference the lenders people still get paid under these circumstances, we the agent or broker receive if you are lucky a half heart felt thank you. If all these half heart felt thank you's accumulated into one big whole heart felt thank you, one of those special things that pay one's bills then that would be fine.
    Hard working people have a right to receive payment for a service rendered and what Robert Stanfield has said is right and these scenario's happen day in and day out to a very high percentage of agents and brokers alike. Good (and in my opinion well respected,as should be the case)people such as Ron Butler fortunately may not have been subject to this dilemma, I as one congratulate the gentleman having not been challenged with such a dilemma. But one can argue there are many good people in this industry and do deliver great service and advise only to at the end of the day receive nothing. That is not right, in fact it is totally wrong.

    Gentlemen there is only one question to be answered here and that is, should brokers or agents work hard and relentlessly for nothing in many cases..(if the argument is this is part of doing business then).....ask a lawyer or a doctor that question or any other professional, regardless of profession who is trying to make a living. If you have never seen them smile or laugh before here is your chance, lol.

  • Ron Butler on 2012-04-19 1:31:51 AM

    I want to say the attacks on Mr. May-Anderson and particularily on his relationship with DLC are wrong, mean spirited and cloud an important issue.

    I believe the concept of charging any up-front fee or an "advice fee" or any sort of fee when no mortgage is funded is wrong. I would support the complete elimination of any up front fee on residential (not commercial) in the next FSCO review.

    I am very surprised at Mr. Perrotta's comments. As a former IMBA President he should be more aware than most that FSCO's mandate is consumer protection and that advance broker fees paid for no result will attract the worst kind of FSCO attention. As we appoach another legislative review with FSCO taking on a loser issue like this is a terrible approach. There will likely be so many other critical issues on the table it is just silly to hilight this one.

    I also don't understand the complaint about working on a difficult file and not getting paid. If you think the deal is too hard don't accept the file. If you are worried about the property value not working out get a COD appraisal done in advance. Insurance agents, most financial planners and all Realtors work without a net. They can work with clients for months and not every deal goes through, we all know this.

    If you don't like how your business is working change your business model but we are fighting a losing battle to convince FSCO to give consumers LESS protection.

  • JM on 2012-04-19 1:51:06 AM

    Read Glen's comment......the first half of the second paragraph explains it one can or should even consider arguing that fact what has been stated. The working hard for nothing issue has been overlooked and ignored for far to long. For all of you who thinks its okay to work for nothing, have a chat with a lawyer or your friendly doctor.

    The latter might be the first and best place to start??? In the event you require some sort of help. lol.

  • Ron Butler on 2012-04-19 2:19:48 AM

    In reply to JM: I am happy to argue the facts: comparing us to doctors and lawyers is just silly.

    Comparing us to commission agents in other fields is the correct approach and in all cases there is often a ton of hard work done with zero reward. Them's the breaks. Refine your business model, rethink client selection or get out of the business but FSCO is never going to listen to our complaints about not making money out of deals that don't fund. It's the same as being mad at gravity. You can be mad if you want but trying to change it is pointless.

  • JM on 2012-04-19 12:40:56 PM

    With respect to Ron, one may or may not agree that he should have the last word. On a personal note I think it may only be proper (weather or not he is right or wrong)that he should be entitled to such. So be it. Respectfully yours Sir.

  • AMP Broker on 2012-04-20 6:09:36 AM

    Advance fees on all residential mortgages are illegal in BC

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