Buying down rates not only cheapens the value of a broker’s work, but could be directly responsible for any slash to broker compensation, according to one mortgage broker.
“When we buy down rates, we are sending banks the signal that we are willing to give up our commissions as long as banks give us the mortgage,” said Wyatt Tunnicliffe, of Dominion Lending Centres in Chilliwack, B.C. “Brokers, across the board, should get together and agree to move away from this practice.”
At least one Scotia official was quoted by an online industry publication saying the bank moved to reduce broker compensation in order to shrink margins and better navigate a low-rate environment.
However, Tunnicliffe said, it is also very likely the widespread use of buying down rates may have played a part in Scotia’s announcement Wednesday it will chop 5bps off the finder’s fee it pays out to mortgage brokers on five-year terms.
Banks felt confident brokers can swallow the compensation cut because they were willing to compete on rate and sacrifice their fees anyway, argue an increasing number of brokers.
“Unfortunately, with the compensation cut that takes effect (Thursday), many brokers are getting hit twice,” Tunnicliffe said. “They slash their own income by buying down rates and then Scotia pays them lower fees.”
It’s patently clear, he argues, brokers should not compete on rates, but focus on getting clients the best deals and products suited for their needs.
“A lender’s commission structure is not at the top of my list,” he said. “First I make sure that the product I am getting for my client is the best for his or her needs.”