Industry’s use of cancellation fees revealed

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The results are in, and the number of brokers who charge cancellation fees – touted as the best protection against rate shoppers – may surprise you.

A healthy debate has ensued on MortgageBrokerNews.ca about the use of cancellation fees, with brokers in both camps providing compelling arguments. But a new MortgageBrokerNews.ca survey is quantifying just how widespread is its use.

According to a recent MortgageBrokerNews.ca poll, 77% of brokers refuse to charge cancellation fees.

Of those polled, 12% admitted to using them as a rule, while 11% do in certain cases.

The small percentage of brokers using the tool, touted as the best way to prevent rate shoppers from jumping ship once they have a commitment letter to present to a bank may surprise its advocates.

“My penalty fee is 1%. But before I put it in the contract, I make sure all things are covered and one important thing is the lender's penalty,” Walid Hammami, a Quebec-based broker with Dominion Lending Centres, wrote on MortgageBrokerNews.ca. “That penalty clause saves me a lot of time; I use it to filter out clients.”

The vast majority of broker subscribe to a different thought.

“I understand that the business has changed dramatically and rate shoppers will waste your time. However, these cancellation clauses are not right,” Jim Tourloukis, a broker with Verico Advent Mortgage, wrote on MortgageBrokerNews.ca. “If someone wants to go elsewhere then tough luck to you, mortgage agent.”

Still, most industry players are free to decide whether or not to implement a cancellation fee policy. But at least one major superbroker does not allow its brokers to charge them.

“None of our brokers do it, so it’s really not an issue for us,” Cameron Strong, CEO of Invis Mortgage Intelligence, told MortgageBrokerNews.ca. “We don’t believe in that – if you don’t get the deal done, you don’t get the deal done and you move on to the next. There is so much business that brokers just keep moving; they’re so busy.”
  • Mike on 2015-09-28 9:51:13 AM

    Question: In Ontario FSCO does not allow fees to be charged on mortgages under $300,000, so if the mortgage does not fund thru the brokerage can the brokerage legally collect a fee? refer to section 37 of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice.

  • Jim T, Advent Mortgage on 2015-09-28 9:53:46 AM

    Nobody in their right mind would sign such a cancellation clause IF in fact they knew what they were signing. I have seen these cancellation clauses from many brokers and in most cases they are not that clear. These brokers are praying on unsuspecting clients and this is wrong. Maybe FSCO should be lobbied to introduce the removal of these clauses altogether. Going forward I am warning anyone who will listen about this practice and to avoid any broker who asks you to sign these clauses. Maybe everyone can do the same.........

  • John Dunford on 2015-09-28 10:07:32 AM

    Try to collect your fee. You have to go to small claims court, and hopefully you win. It takes money and time out of your busy schedule. You create a lot of anger with the client. Remember, good news travels fast, but bad news travels faster. You could loose other potential clients. You are better off to go after more business, where you can make good money and keep a good reputation.

  • Barb on 2015-09-28 11:28:02 AM

    In Ontario FSCO doesn't allow any upfront fees unless the mortgage is over $300k. If the deal didn't close, your "application fee" is now an upfront fee. Regardless of what you call it, the mortgage has to be over $300k for you to charge a fee without the mortgage closing first- otherwise it's not legal

  • KBowles on 2015-09-28 12:03:18 PM

    A happy client over the long run will net you a lot more income by repeat business. A client that is forced to deal with you because of a cancellation clause is a one time client.

  • kac on 2015-09-28 12:44:50 PM

    funny how Mortgage Brokers in most provinces are not allowed to charge up front cancellation fees which i fully understand however isn't it interesting how chartered banks,credit unions etc can charge up front application fees which are absorbed by their coffers if an approval is offered and subsequently denied by the client regardless of if the bars changed from the time of application to the end. I for one do not believe in the up front fees however im not sure there is a regulatory body that cares to protect the consumer against the lenders with deep pockets.

  • Vanessa on 2015-09-28 4:39:22 PM

    Banks are going to eat this information up and then serve it to prospective clients before they even get to a broker. Is it fair? No. It's painting everyone with the same brush. Just like we brokers do to the bank mortgage reps. In the end, the client decides, hopefully being fully informed BEFORE they sign anything.

  • Andy MacDonald on 2015-09-29 10:23:55 AM

    Here is the clause in the Regulations dealing with advance payments in Ontario:

    Advance payment by borrower

    37. (1) If the principal amount of a mortgage is $300,000 or less, a brokerage shall not require a borrower to make, and shall not accept, an advance payment or deposit for services to be rendered or expenses to be incurred by the brokerage or any other person. O. Reg. 188/08, s. 37 (1).

    As long as you have provided a service you can legally charge a fee. Obtaining a commitment from a lender is providing a service. Charging a cancellation fee after services have been rendered is not in contravention of the Act.

  • Walid Hammami on 2015-09-29 11:42:49 PM

    The beauty of being your own boss is that you can choose who to deal with. I am personally looking for clients that will get an added value from me. My added value is my 100% commitment to them to get the job done properly . I provide advise and expertise beyond just data entry and document collecting.

    If clients want to do business with me then they need to understand that this is serious matter for me, I am committed and they need to commit too. a cancellation fee will make sure that my time will be rewarded.

    I value my time and I value my work because I believe it is of the highest quality.

    Lawyers and consultants charge fee per hour. Banks charge a penalty when you break a contract and everybody understands.

    But when it comes down to mortgage brokers it seems that they don't think highly of their contribution.

    Even the super easy clients can appreciate our work. By being professional and saving them time you increase their quality of life.

    I guess I am not selling a mortgage at all, what I am selling is long term relationship with a professional mortgage broker.

  • John Greenlee on 2015-09-30 9:41:46 AM

    Lost in all of this discussion is one simple word.

    Transparency.

    By being transparent with your client you will earn their trust, whether you have a cancellation fee or not.

    If you have their trust you'll never have to charge a fee, whether they've signed a form indicating they would or not.

  • Ron Butler on 2015-09-30 2:25:03 PM

    John, I do not disagree, here's the truth about clients who do trust you, on a transfer / switch if their existing bank give a rate that's only 5 bps more than your rate, free checking and zero paperwork to produce, the client who outright loves you is likely to stay with their bank.

    But we were the ones who created the rate quote that allowed the client to get that rate from their bank. Should we earn zero?

  • Liam Morton on 2015-10-04 3:12:18 PM

    I don't charge advance fees. But I do have a contract that says my fee is earned upon issuance of a commitment with a specified rate and loan amount. This fee is waived upon signing of the commitmemt. They have the option of accepting my commitment and not paying a fee or walking and paying my fee. 99% sign the commitment and take the deal. Those that don't not usually send in a cheque to pay my fee after I invoice them. If they don't, I write it off.

  • Michael on 2015-10-05 3:04:02 AM

    I do not think this issue is about cancellation fees per'se. I think this issue is more about broker skill set in the market place. If I were a betting man, roughly I would say they 7 out of 10 times 1 of 3 scenarios create problems for cancellation:
    Over promising and under delivering
    Lack of tone
    Out right sloppy work
    Blanket comments seldom say anything about the topic at hand. In this matter, it is tough to say right or wrong because each file stands on a case by case basis. Different strokes for different folks.
    Here is the fact: if the proper tone is set upfront and without doubt one cannot go wrong fee or no fee.

  • John Greenlee on 2015-10-05 9:16:51 AM

    Ron - 100% we shouldn't earn zero once a commitment has been issued.

  • Mister Gill on 2015-10-05 9:39:44 AM

    Despite the fact that you cannot charge up front fees, long term client or not, you need to be paid for what you've done.
    If you been transparent and explained the process and what's involved and done exactly as you promised, sure the Borrower may change his mind or go with who ever, but I've earned my fees when the commitment is given.

    I'm not interested in having a long term client who does not value work I have done - just because they changed they mind.

  • Michael on 2015-10-05 1:53:51 PM

    being paid upon the release of a commitment is wishful thinking at best.....client's do not accept commitments all day, every day becasue this is how the world works.
    Again if the proper tone is set up front and without doubt one cannot go wrong fee or no fee. the other aspect to be considered is: Know your client....inherently as a broker one should have the learned ability to sniff a shopper a mile away via intuition. At this point the deal should be considered dead. Why chase the wind hoping against hope?

  • Sean Binkley on 2015-10-05 2:12:16 PM

    You win some, you lose some - what are you doing to ensure you win more?

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