Brokers call for more oversight

Brokers call for more oversight

Brokers call for more oversight Brokers frustrated by high prepayment penalties for clients are calling for more government oversight.

“The federal government needs to step in and set a single formula that all lenders are mandated to follow, thus protecting all consumers,” Blair Goodman of Dominion Lending Centres National wrote on MortgageBrokerNews.ca

Several industry players were quick to agree with Goodman’s suggestion, citing excessive penalties doled to clients by certain lenders.

“The big banks have all reduced their posted rates below five year terms, thus creating a massive IRD day one after signing a five year fixed mortgage,” Peter Pasula of Domionion Lending Centres Coquitlam Mortgage Brokers wrote. “A recent … client with 2.79 fixed rate and 3.5 years remaining on the term was quoted +$50k for a penalty. Low rates like this should not have any IRD penalty.”

The discussion was sparked by an MBN article about the various prepayment penalty calculations used by different lenders.

“There are so many different ways lenders calculate penalties – certain lenders will use the posted rate and not the discounted rate that was offered to the client,” Narish Maharaj of Dominion Lending Centres Mortgage Mentors told MortgageBrokerNews.ca. “Others will subtract the client rate from the T BILL rate and subtract the client’s rate to determine the penalty.”

According to Mararaj, not only are certain lenders doing whatever they can to saddle clients with the largest possible penalty, it can become confusing when dealing with all the various rules.

“Trying to figure out the penalty is frustrating [from lender to lender] and many of them are creating much bigger spreads,” he said.
 
12 Comments
  • james 2015-06-09 10:07:11 AM
    Get real. This scam has been going on since 2009 and nothing has been done about it but lip service.

    Why would the Banks care? Brokers still send them the business despite knowing clients may get screwed. Banks win no matter what.

    Why would the Gov't care? nothing in it for them.

    Why would the lawyers care? They are focused on the legal lingo. Banks do a great job with their nebulous disclosure.

    Clients? All they see is the "rate" and bitch about it later and pretend that they weren't told.

    There will still be a few good brokers out there who will give a crap. Kudos to them. If only ALL cared...then, this larceny may stop.

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  • John Bargis 2015-06-09 10:14:57 AM
    Making noise about the onerous penalty calculations of several lenders may some day get the regulators to act. But in the meantime, brokers need to do a much better job in understanding their clients' needs and long term intentions, before placing then in a mortgage product that will only lead to an unpleasant surprise on discharge.

    There are far too many brokers that do not take the time to properly explain, or even themselves understand the pros and cons of a product, especially when it comes to the more recently introduced deep discount products on the market based strictly on rate, which are highly restrictive and not the best for borrowers.

    A professional broker takes the time understand each product, so they can properly educate their clients. After all, an informed client is a happy and repeat client. Be smart by getting smarter - your clients will appreciate you more, and refer you more business so you can build a business.
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  • Kevin 2015-06-11 3:38:56 PM
    Maybe if fewer brokers churned their book of business so often this would be less of an issue. Mind you if that happened most brokers would starve.
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