It may seem like a cover-you-butt approach – asking clients who opt for no-frills mortgages to sign a waiver – but it also has the power to redirect them to full-featured alternatives, say an increasing number of brokers.
“I’ll arrange the mortgage for them, but they’ll have to sign saying that they understand the limitations of the product – that they may not be able to break it and the limited prepayment privileges,” says Jeff Mayer, a high volume DLC broker in Toronto. “But I find that in 90 per cent of the cases, the client decides to cancel the application and go with a full-featured, standard mortgage instead despite the higher interest rate.”
Mayer isn’t alone, with more and more brokers rolling out those types of waivers as rate competition with the banks heats up, forcing mortgage professionals to offer those stripped-down mortgages to clients fixated on rate.
The waiver offers brokers some protection against future claims they failed to disclose limitations attached to those mortgages; for example, 10/10 prepayment privileges and discharge only if the mortgage is refinanced with the existing lender or at the time of sale.
It also sets the stage for one last conversation between the client and the broker about suitability. That affords Mayer an opportunity to sell other key features of a standard mortgage albeit with as much as a 15 basis point differential.
Waivers have recently been suggested as a tool for helping brokers with another form of mortgage.
The growing use of collateral charges means brokers should consider asking clients to sign waivers acknowledging they were appraised of the ups and, indeed, the downs attached to those controversial loans, a leading E&O insurance provider told MortgageBrokerNews.ca.
“Certainly, it is a good risk management practice to have them sign a waiver acknowledging that the broker informed them about all aspects of a collateral charges mortgage and releasing the broker of any responsible,” said Derrick Leue, president of LMS PROLINK – broker-partner for Liberty International Underwriters Liberty.
The advice effectively answers a growing number of brokers worried about possible ramifications tied to arranging collateral-charge mortgages as an increasing number of their lenders restrict abandon the convention model.
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