'Escalating lender incentives' for Realtors troubling, say brokers

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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.”

  • Brian Matthey on 2011-09-21 2:50:31 AM

    Interesting that mortgage brokers are held to a higher level of accountability and responsibility in ensuring a client is making the right choice in their decision to suit their current situation and their future.While RECO may confirm that this is compliant,how many realtors are disclosing the relationship and the fee and how many are going to be led down the garden path for the sake of an additional dollar in a realtors pocket?Makes you wonder where the Ministry stands on this issue?There goes the playing field tilting again!

  • SW Ont Broker on 2011-09-21 3:01:27 AM

    There is no doubt this is a problem. You all know as well as I that if we as mortgage professionals started to sell houses, that OREA and CREA would be all over us like a "fat kid on a smartie". It's all crap! If real estate agents are that greedy that they need their 5 or 6% commish (possibly 1/2 as such) and money from a lender - all is BS ... Are they putting their clients first - absolutely not - do they know what is best - absolutely not ! and ALL of them have no idea what to do on a good day as far a s a mortgage goes ! Most of them came to us ! Many realtors have bought Centum and DLC franchises - greedy or what !!! !I find it hard to believe that FSCO would allow this to happen !!! National started this years ago (they obviously had to go direct as their broker biz was suffering) and now we hear TD is getting into this game !! Boys and girls - you are looking up the wrong skirt !

  • Mark Piers on 2011-09-21 3:59:27 AM

    Well here is all I have to say about this ... Can we mortgage agents, through the broker channel, simply refer the client to our lender of choice (that best meets the clients needs)and in return receive 50bps FF?? Meaning the lender does all the work from inputing the deal, collecting documents, structuring the deal etc etc etc???

    I would entertain that option. Given the work that goes into placing a mortgage from start to finish, I cant imagine that this is a profitable move for the lenders or one that they can sustain.

  • Valérie Whissell on 2011-09-21 4:02:35 AM

    I understand your concerns, In Québec it has been this way for years. Realtors have become a serious competition for brokers; they will go as far as discouraging client to use a mortgage broker. Realtors are accustom to that referral fee and expect to make their sale commission plus their referral fee form the bank. To top it off, sales rep from banks pay the realtor, so they make the perfect team to keep the client away from mortgage brokers. Sales rep (bank) will pay builders as well, so builders will discourage clients to deal with a mortgage broker as well. The business I have to rely on is my existing clientele and the good words they provide for me to their friends and family, I keep them well informed of all their mortgage option so they understand the advantages of dealing with a mortgage professional. It is sometimes frustrating, but it is what we are facing here in Quebec

  • Barbara Buote on 2011-09-21 4:28:11 AM

    Brian, you ask where the Ministry stands on this
    issue. I ask, where does CAAMP stand? Problem is,
    the representation is not limited to mortgage
    brokers but the banks themselves.

  • Mark Piers on 2011-09-21 4:36:02 AM

    Couple of other thoughts ... in response to Barbara, I agree!! Where is CAAMP on this?? That was a rhetorical question ... as we all know where they stand.

    More importantly ... an this comment is addressed to every broker out there ... this is yet another reason why we need to support the lenders that support our industry. PERIOD!!

  • Mike Dawson on 2011-09-21 11:13:08 PM

    1) I am disappointed in my fellow Ontario brokers & agents ignorance of the MBLA Act. What the realtors are receiving is a "simple referral" as defined by our Act. It is not greed, it is smart business. All real estate agents have in excess of 300 hours of education, mortgage agents in Ontario have 40 hours.If you want to pay, study & pass at least six exams you can sell real estate too!

    2)Lakhanpal obviously hasn't been in the business that long, as this arrangement between this bank & this real estate franchise has been in existance for about 20 years. Bank pays master franchise 100bps, split 34bps for master franchise, 16 bps for the real estate brokerage & 50bps for the referring real estate broker/agent.
    Piers has it right, support the monolines who support us & don't compete with us. If you work for a large national broker voice your opinion. Of course the large national brokers are getting the larger volume bonuses from the banks, so they don't care.

  • Ad Lakhanpal, Mortgage Alliance on 2011-09-22 3:50:59 AM

    With reference to comments by Mike Dawson:
    1. In MBLAA, a Simple Referral without charging a fee is not an issue. However,if a fee is to be paid, it has to be disclosed to the borrower so he/she can make an informed decision . The issue is, who will do it and who will monitor that it is done.
    2. Re bank incentives,I have checked with two Re/Max real estate agents who have been in business for more than 20 years and they say that they have never been paid a cash commission by a bank for a referral.They agreed that some banks have a point based system that can be redeemed for small gift items.Regardless, in my opinion,the issue is not that realtors can benefit from this practice, instead the issue is whether this practice is in the best interest of the client. Clients should be free to make their own choices in terms of a product or a lender,with or without a broker. However, if their decisions are being unduly influenced by some parties behind the scenes, purely for their own vested interests,some regulatory body should take notice of it to protect the consumer.

  • @kiltedbroker on 2011-09-22 5:02:12 AM

    I agree that this has the potential to be a big problem, however I wonder what would happen if the broker channel spent more time improving our service level to Realtors than worrying about the legalities of what these lenders are doing?

    I guess I just question whether we are providing enough value that even if the lender pay was on the table, that the Realtors would still choose to use us because of our exceptional service. There has to be a way!

    Just a quick thought anyway...

  • Steve B on 2011-09-22 8:18:44 AM

    For someone to pay that much, they must not see the value in what we do. I can understand a nominal referral fee, but half your commissions, that is crazy. The realtors already make way more than us on every deal so why are you rewarding them. Go get the business yourself and make 'your' money and don't give it away. I am sad seeing this!

  • E on 2011-09-23 8:15:47 AM

    insert joke here...........

    And the punchline is that some brokers continue to send these lenders the lion's share of their business....

  • Sam on 2011-09-23 9:24:22 AM

    Guys, last time I checked, we live in a capitalist economy. Stop crying like a bunch of babies. Why shouldn't realtors get paid if they own the client. Would you not want to get paid if you were in their shoes. Absolutely you would. I actually welcome this movement. I don't deal with realtors at all as they are 1 step below used car salesmen. Hopefully this move will push many marginal mortgage agents out of the mortgage biz and back to their taxi cabs. Serves you right for being stupid enough to rely on realtors for business.

  • Angela Wong-Liao, Invis Inc on 2011-09-23 10:34:29 AM

    I agree with Mike Dawson, the green bank has been paying referral fee to realtors for years, this is not new in our industry. I notice that the truly successful realtors, they do not care about this referral fees, as their only concerns are that their clients are happy and the house transactions are closing smoothly. The realtors who are interested in referral fees are the ones who are mediocre, they needed the referral fees to supplement their real estate commissions. Competitions are always intense in both the real estate and the mortgage financing businesses, lenders against lenders, realtors against realtors and mortgage professionals against mortgage professionals, we have to accept the reality than to keep on complaining about our businesses. The mortgage market is very tight at this time, but if you are very good, the fittest always survive and thrive. Let us focus on how to improve our service levels and increase our networks to move forward.

  • Mike Dawson on 2011-09-23 4:42:37 AM

    Ad , read the agreement of purchase & sale. In the preprinted portion
    It states that the real estate brokerage may receive a fee for mortgage
    referral, borrower signs the AP&S, so they acknowledge and consent to the fee
    & it is in the REBB Act so RECO does audit it.

    2) two agents out of ? Thousand is not a scientific sampling.
    Trust me this incentive to these agents by the green bank
    has been around for 20 years. Ask a few people who have been around 10
    plus years with that franchise.

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