The apparent "escalation" of lender incentives for Realtors is raising broker concerns around disclosure and the potential dangers for clients.
“Nominal incentives or gifts I can understand,” Ad Lakhanpal, with Mortgage Alliance in Oakville, Ont., told MortgageBrokerNews.ca, “but there seems to be an escalation in the incentives that some lenders have started paying to the real estate agents, with at least one now offering direct commissions, and not just points. That escalation is a real concern because that kind of commission needs to be disclosed to the client by either the bank or the real estate agent. Also is it going to be in the best interest of the client?”
The cautionary note comes as lenders enter the home stretch in the race to close mortgages and meet year-end targets. An Ontario mortgage manager at one of the Big Six is now circulating a flyer offering a referring RE/Max “broker office” 50 basis points on every residential mortgage that moves to closing. That compensation “conforms to RECO’s guidelines,” reads the offer, while highlighting a $1,500 commission on a $300,000 mortgage.
The flyer also offers another incentive, this time to the client, in the form of $1,200 in cash back at the time of the closing for mortgages approved between September 1 and October 31 of this year. The amount on that loan must be a minimum $150,000.
In the aggregate, that offer ups the competition for brokers, representing an almost unbeatable challenge, another agent told MortgageBrokerNews.ca.
It may also be misleading for the client, said Lakhanpal, worried that consumers may ultimately be ushered into agreements with a specific lender, and without the advice of a mortgage professional -- able to canvass the lending landscape for a product best suited for the short- and long-term needs and objectives of the client. That very real possibility makes disclosure to the client imperative, he said.
“Fifty basis points is a fair amount of money,” Lakhanpal said. “It is real and material incentive and must be disclosed to the client. It’s also concerning because we may see more lenders follow this lead and the client may simply rely on the real estate agent’s referral on what is probably the largest investment of the client’s life, without having had the benefit of a professional mortgage broker’s advice.”