More clarity needed for syndicated mortgage websites

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Following a FSCO warning about an unlicensed syndicated mortgage referral website, one industry leader suggests there needs to be more clarity when it comes to these arrangements.

In an official statement, the commission warned consumers that InTeg Financial is not licensed to broker mortgage business in Ontario. The company’s website does, however, link to a FSCO licensed brokerage named Marks & Associates. InTeg appears to be in breach of MBLAA guidelines but what about the brokerage it links to?

It remains unclear.

“That’s a bit of a tough question. What should be the responsibility of the brokerage accepting the lead? From what I can see it doesn’t look like there is any prohibition on a brokerage doing that; there is a prohibition on the brokerage paying a referral fee to a company that should be licensed as a brokerage,” Joe White, president of the Association of Mortgage Investment Professionals (AMIPROS) told “That would be a contravention of the legislation. In that sense it would defeat the whole purpose of the company offering a referral.

“I wouldn’t call it a grey area; I would call it an area that needs more interpretation.”

The legislation White refers to is 188 44. (1) in the Mortgage Brokerages, Lenders and Administrators Act, which states:

A brokerage shall not pay a fee or other remuneration for dealing or trading in mortgages on its behalf to another person or entity that carries on the business of dealing or trading in mortgages unless the other person or entity either has a brokerage licence or is exempted from the requirement to have such a licence.

According to John Marks, president of Marks & Associates, his brokerage does not pay referrals to Integ; a company, he says, that is used merely for admin and educating the general public about syndication. He is currently working with FSCO to rectify the matter.

"We believed that the marketing being done by Integ was compliant; however after discussing with FSCO we now understand what changes need to be implemented not just by ourselves but the industry ,” Marks said. “I’ve been a broker for 38 years so, certainly, compliance is king with me.” also reached out to FSCO to query about these types of referral arrangements. This was its response:

“FSCO monitors the marketplace for areas where there may be a lack of clarity regarding whether a financial services practice is compliant with legislation, and in such areas, FSCO takes pro-active measures to ensure consumers and regulated persons and businesses are fully informed and educated,” Aisha Silim, media spokesperson for FSCO wrote in an email. “To maintain the integrity of all of our investigations, we can neither confirm nor deny the existence of any specific complaints or investigations against individuals or businesses.”
  • Amit on 2014-12-03 2:43:53 PM

    So, what about National Bank and Manulife Bank paying referral fees to Real Estate Agent or Broker or Accountants (who are not registered to deal in Mortgages), will that considered Compliance.

  • Ron Butler on 2014-12-03 2:59:17 PM

    I think a great first step would be to ban the payment of any referral fee to any agent or brokerage to bring an investor to a brokerage to invest in mortgages.

    There is nothing wrong with an agent or broker working with another brokerage to split a brokerage fee on a "one of" deal but straight payment to rope in mortgage investors for large syndication of massive mortgages should be banned.

  • Doug on 2014-12-03 3:56:50 PM

    Ron, you don't think agents should get a referral fee for referring a lender/investor to a borrower? Isn't that what brokering is all about?

  • Amit on 2014-12-03 4:01:20 PM

    Sorry Ron,

    You got me wrong, what I am saying why Banks like National Bank and Manulife Bank are giving such a hefty referral fees to Real Estate agent and Accountants to refer business to them. They get 50 basis point of the loan amount without having mortgage agent or Broker license, and I believe it is very high amount. I believe this should not be given to non license Mortgage agent.

  • Doug on 2014-12-03 4:05:54 PM

    Hi Amit. That's called a simple referral under the MBLAA. If someone sends the name and contact information of a potential borrower to a lender, and that's all, then they're not brokering. As long as the lender discloses that they're paying a referral fee they can do so.

    Would you be willing to pay an accountant a referral fee to refer a client to you? Would you pay a realtor? Maybe a different way of looking at it :)

  • Ron Butler on 2014-12-03 4:26:48 PM

    Doug, here's the thing, we need to defend our own position in this mortgage marketplace. We need to think about exactly what we are doing when we solicit investors in mortgages. I guarantee you: no one, absolutely no one foresaw 10 years ago or likely even 5 years ago that a mortgage broker or agent would act a conduit to gather investors to hand them over to a totally separate brokerage and then walk away from the investor, wish the investor the best of luck, leave the totally separate brokerage to work with that investor and then that referring agent or broker would collect a 10%, 8% 5% or whatever fee simply to do the introduction.

    What mortgage brokering should be about is: I have a borrower who wants a private mortgage and I go to a separate brokerage who has a good deal on the private funds and then we both share in an agreed upon brokerage fee. That's a very transparent transaction.

    If I simply deliver investors to a separate brokerage who then stick handles the whole interaction between the borrower and the investor that I brought to that totally separate brokerage then what is going on is that the agent or broker is being paid a very large fee to be a "roper": a finder of investors with little or no intimate knowledge of the whole transaction. That is NOT mortgage brokering as I understand it.

    Perhaps a case can be made that the agent or broker who acted as the "roper" of investors had studied the separate brokerage's borrower and security but honestly I don't know if that is happening in every case. Frankly, in some cases I KNOW it is not happening.

    So I believe in that case this is not mortgage brokering, this is an investor delivery system at a FAR higher referral fee than is normal in the investment industry.

  • Victor Simone on 2014-12-03 6:27:26 PM

    Do I remember correctly, that Integ had consultants that were not mortgage licensed with FSCO ?

    I think that is a big issue here, and if not for that, the whole thing could have been properly co-brokered.

    Also, lenders should not be able to pay unlicensed consultants a mortgage referral. Does a mutual fund company, an insurer, or a stock brokerage pay an unlicensed person for an new customer ? No that I remember.

    There are some unlicensed "consultants" accountants and realtors out there sending deals directly to commercial lenders, and MICS. Must be nice, to be able to operate without anyone to answer to.

  • Doug on 2014-12-03 8:35:18 PM

    Ron, the legislation requires the brokerage closing a transaction to provide specific disclosures to the investor.
    If you find an investor and arrange a loan for a borrower directly, you are giving that investor full disclosure and meeting the other regulatory requirements.
    If you find an investor and refer that investor to another brokerage, they are giving that investor full disclosure and meeting the other regulatory requirements.
    Therefore the investor is getting full disclosure regardless of how that investor arrives at investing in a mortgage.
    If a brokerage is not giving full disclosure and meeting other regulatory requirements, that is a totally separate issue, and the legislation deals with that.

  • Ron Butler on 2014-12-04 10:50:04 AM

    Doug, I certainly understand why you want to keep your last name a secret.

    It is just horrific to say that if the paperwork is right we don't have to care what kind of mortgage the investor is getting. You can dance around that if you care to reply but I have written you off, no matter how you try to walk it back you have said it.

    You are actually the exclamation point to my whole comment. The referring broker in most cases DOES NOT CARE about the nature of the mortgage that they are referring the investor to: just pay me my 8% referral fee, make sure the paperwork is solid so if the mortgage investment goes sideways I can survive a FSCO compliant and I am on my way to Jamaica to soak up some sun on the fat referral fee.

    That is so wrong on so many levels. When I started thinking about private mortgages a couple of decades ago a brilliant lawyer set out the guiding principal of soliciting private mortgage investment:"the quality of the property security is paramount, treat the risk exactly like it was your own money. Research, check out all aspects of the loan, then check again"

    We have to WORRY about the private mortgage investments we recommend to investor clients. That is the essence of the job.

    Based on Doug's comments that concept has gone out the window for some brokers and agents in the face of the opportunity to collect fat referral fees and walk away from the private mortgage investor with a flippant: "you signed all the documents, so its all on you"

  • Keith on 2014-12-04 3:33:49 PM

    So let me get this straight... There are those people who believe it is OK as a broker/brokerage to take in investors to do their own private lending, but it is unethical or not OK to refer the consumer to a third party and receive a referral fee?

    Using that logic, is it then not OK for a broker to refer a client to a lender to obtain GIC's, RRSP's, mutual funds, etc? The broker earns a referral fee, and if you look at the historical return on Mutual Funds - they are one of the worst investments you could ever make in your lifetime.

    Brokers often pay referral partners a fee for their referral, is that also unethical? Is it unethical for an insurance company to pay a broker a referral fee?

    If the following scenario is true:

    Broker to client: "I have a product that you may be interested in if you are looking for investments"

    Client: "OH, can you tell me more?"

    Broker: "Sure it is called syndicated mortgages. What that means is that you invest in a specific construction project and have your own individual charge on the title."

    Client: "That sounds interesting, can you tell me more?"

    Broker: "There are several companies that offer this type of investment product. Here is XYZ Company, would you like me to get them to give you a call?"

    How is this an issue? If the broker says, I heard about this product and I think it is interesting and then refers the client to a licensed agency to do the sale and manage the investment - the client still has personal accountability to ensure that they are comfortable with the risk associated with that investment.

    Investment brokers get paid referral fees ALL THE TIME for stock advice, etc. Should they not get paid?

  • Doug on 2014-12-04 3:49:41 PM

    Ron, you may be misinterpreting the regulatory requirement. If you, Ron Butler, refer a client to another brokerage, that other brokerage must do all of the due diligence required under the MBLAA for that investor. Not just "paperwork."

    So, the investor gets the full benefit of the MBLAA. You say we have to worry about the recommendation we make to our clients. Again, I don't think you understand the process here. You're not making a recommendation. You're referring a client. The other licensed, regulated brokerage is making the recommendation and is fully required to do all of its due diligence under the MBLAA.

    I imagine that often the referring agent doesn't understand the product enough to make a recommendation. That's why it's a referral.

    I'm not talking about the simple signing of documents. That doesn't meet the regulatory requirements. Full informed disclosure does and that is what the closing brokerage MUST do. If you have an issue with the closing brokerage not doing that, then that's a completely separate issue.

    If that brokerage wants to pay you no referral fee, a small referral fee or a large referral fee, that is up to its business model.

    And of course I'm not including my last name because I feel you take personal shots. I'm making a genuine, logical argument about an issue that I feel is important to our industry and should be debated with respect and dignity. Whether I give you my last name or not does not change my argument.

  • Keith on 2014-12-04 3:51:29 PM

    Furthermore, a Mortgage Broker is paid a referral fee by the lender to bring them business... Do all mortgage brokers ensure that they have provided the client with a minimum of three products and lenders to choose from?

    In my career I have met hundreds of people that brokers have put into products without truly understanding the consumers needs. Consumers who pay huge penalties because the broker did not ask the right questions.

    What about the brokers that only sell rate? You know, the ones that deeply discount rates just to get business, and that is their primary offering? How is the broker providing sound advice to the customer if all they focus on is rate and payment?

    How about the brokers that solicit their existing clients to refinance when rates drop, and take the customer to a new lender so that they earn full commission on the deal when the client could have stayed with the same lender and not paid a penalty?

    Maybe we should cap the maximum amount that ANY broker can receive on ANY business... that way it doesn't matter where you send the deal, you get paid the same.

    I did a bit of a test, I called a broker that pushed low rates, did a fake application, etc. NOT ONE question relating to my future plans for the home. Was I planning to retire soon? Did I want to retire debt free?

    That brings up another topic... what about all those brokers that solicited their clients to do ETO's and use the equity in their home for investments? Some of those people ended up upside down in their mortgages in some cities after 2008.

    In fact I know for a fact that one broker who comments here that did that, I worked for a lender at the time that received applications from that person for exactly that.

    Isn't that unethical? Soliciting someone to go into debt so that they could earn a commission?

    People want referral fees and business practices to be examined for the ethical standards? OK let's open the door for ALL referral fees. Maybe that is a good letter that needs to be sent to all of the regulators and OSFI... maybe to the PMO and the Minister of Finance too... I am sure that there are consumer watch dogs who would be interested in this as well... Time to put the whole of the broker industry under a microscope.

  • Doug on 2014-12-04 3:54:31 PM

    Keith, well put.
    And to clarify, if the referring agent was recommending the product, selling it, making false statements, minimizing the risks, misstating the benefits, etc., all of that should be countered by the closing brokerage doing its due diligence and full disclosure to the client. It's the job of the closing brokerage to ensure that the investor knows exactly what they're getting into, the good, the bad and the ugly.

  • M. Robertson on 2014-12-04 3:59:16 PM

    Keith you make some excellent points about referral fees and the practices of some (not all) mortgage brokers.

    I too have seen too many cases where someone is solicited to do an ETO for "investment" purposes. In all cases the broker is paid a referral fee, and 99% of brokers will ALWAYS take their client to a new lender so that they earn full commission. Based on the arguments of some, that would be highly unethical, as would only selling rate, or not having a discussion about the clients future goals for home ownership.

  • Ron Butler on 2014-12-04 4:20:41 PM

    Doug and Keith whom wish to remain nameless for the sake of their "dignity"

    1) We can debate broker / borrower practise till the cows come home. Waste of time, I am only talking about broker / investor issues here. I am only interested in the referral fee issue.

    2) We can refer clients to other licensed, trained professionals who are OUTSIDE our industry. We may even get a referral fee if our client does some business these licensed, trained, experienced outside folks but syndicated mortgages are IN our industry. Totally different. These things are OUR responsibility.

    3) Their is ZERO benefit of the Act if the mortgage investor LOSES ALL THEIR CAPITAL. Is FSCO going to write the mortgage investor a cheque to recover their losses? Quit hiding behind the MBLAA. It's actually reprehensible to point at the Act, or point at the other mortgage brokerage (who may do a great job or may do a terrible job) and say "it's all on them, but I enjoyed spending the referral fee"

    4) "Would you like me to have them (the brokerages who pay the big referral fees) give you a call" well Keith with no name, you just directed the mortgage investor in a very specific direction for 8% pieces of silver. Honestly............. you don't see the difference between a borrower and an investor? You don't think it is your absolute duty to check out EVERYTHING about a mortgage investment before you point a client at the investment and take the referral money, if you don't you should be ashamed of yourself. This mortgage investment is being marketed in OUR industry and if you work in OUR industry do the right thing by the investor. Know EVERYTHING about it right down to the appraiser and the borrower in depth.

  • Doug on 2014-12-04 4:34:19 PM

    lol - I said let's have a dignified discussion, not save my dignity. Huge difference. Just like the points I've been trying to make.

    Hiding behind the MBLAA? Ron, if followed it's designed to protect consumers and maintain the integrity of the industry. Nothing to hide behind, but something to stand up for.

  • Ron Butler on 2014-12-04 4:43:30 PM

    Doug, I have a feeling you are not a bad guy but you just don't get it. The MBLAA does not address the QUALITY of the investment. Call the senior people at FSCO, the Act is about disclosure and suitability, the onus is on the broker to make sure the mortgage investment is a good quality mortgage, good property /security, good borrower, good appraiser, good lawyers, easily re-sold property in the event of a problem, well thought out exit strategy. These things are up to US they can't be passed off for the sake of a referral cheque.

  • Doug on 2014-12-04 5:16:14 PM

    I agree that it's up to the closing brokerage to give full disclosure and ensure the investment is suitable. If that's NOT being done that is a problem. Suitability speaks to the quality of the investment. The potential investor should have all risks fully disclosed so they understand the quality of that investment.

    I'd check to ensure that the syndicated mortgage provider is doing their due diligence, including checking suitability. If they weren't, I wouldn't refer.

    But Ron, I don't feel the referral fee is the problem. Rather if the syndicated mortgage isn't being properly explained by the closing brokerage, that's the problem.

    I've had folks ask me about syndicated mortgages and I've put them in touch with two different providers, and didn't ask for or get a referral fee. In fact I've never gotten a referral fee from a syndicated mortgage provider. I have from brokers I've referred investors to for private mortgages - but I was sure to tell them that they need to look at each investment and make their own informed decision. I trusted the brokers I referred my investors to.

    Referral fees may be getting some "ropers" as you call them to blindly send potential investors to other brokerages. But it's still the moral, ethical and legal obligation of that closing brokerage to advise the potential investor of the risks, suitability, etc. of that potential investment. If the brokerage isn't doing that no amount of money as a referral should incent a decent agent or broker into referring a potential investor.

    Now while I've thoroughly enjoyed this topic, I'm going to refer my kids to their mom for dinner. Perhaps I should eat first to make sure it's safe for, just kidding.

  • Ron Butler on 2014-12-04 5:31:58 PM

    Doug, here's the thing, I have zero problem with "one of" simple private residential mortgage referral where clearly you shared in a portion of a disclosed brokerage fee.

    My issue is with massive referral fees on huge (mulit-million dollar) complicated mortgages handed out on a blanket basis.

  • Versico on 2014-12-04 9:22:46 PM

    There appears to be a great deal of discussion, however if Integ Financial is soliciting investors and then sending them to a brokerage and paying the brokerage a fee for acting as the go between then Integ is in breach of the MBLAA. It has nothing to do with finders fees or referral fees. Integ has set themselves up as a syndicator without meeting any of the legislated requirements.
    As for MICS they are either registered under the Loan and Trust Companies Act or similar provincial legislation and can borrow funds for investing in mortgages or they are limited market dealers and have raised share capital and owned and operated by a registered brokerage. If the are soliciting lenders directly then FSCO should take action against them as well

  • dan on 2014-12-05 6:33:32 AM

    nice post

  • Keith on 2014-12-08 2:07:48 PM

    Ron, I find it interesting that you do not want to have a discussion about anything other than just the investor referral fees. At the end of the day a referral fee is a referral fee... period.

    Ron, you have made it very clear over the past year your dislike of the large syndicated mortgage programs, one company in particular has been the focus of your ire. The interesting thing is that you yourself do syndicated mortgages, just on a smaller scale. There are articles where you are stating that this is OK but the big ones are not. Even the ones where the companies are registered with the various provincial securities commissions.

    Tell me something Ron, do you pay referral fees when a broker sends you an investor?

    Pot... meet kettle.

  • Ron Butler on 2014-12-08 2:20:57 PM

    Keith who will remain nameless so he can lurk in the shadows and spew foolishness with no recrimination.

    You have to pay attention, I have said about a hundred times there is no problem with multiple investors on simple, plain vanilla mortgages on FINISHED properties for rational 1 year time frames with sensible 75% or 80% Loan to Values. Quality appraisers, easy to understand covenants. Now I have said it 101 times.

    In 19 years in this business I have never paid one penny as a referral fee for an investor. Investors have come to us as a free referral from other investors based on good results. The first couple of investors came to us from media advertising and it has grown organically ever since.

    Blather........... meet waste of time.

  • Keith on 2014-12-09 12:36:37 PM

    Ron, I choose not to reveal my last name because I have seen how you treat people when you know what their last name is. That and this is Canada, a free country, if I choose to only use my first name that is my right.

    OH and I know it irritates you, so just for the fun of it.

    So you say that it is better for an investor to enter into a pooled mortgage fund, where they have limited controls over who the money is lent to, have limited registration on title, and where if there is a first charge on title that lender often has it clearly stated in the contract that no second charges are allowed without prior written consent... or have you never actually read standard charge terms for all of the banks and credit unions?

    That as opposed to one where they have direct controls over the property they are investing in, they have their own independent charge on title, and the first mortgage holder has fully approved the additional funding. In fact, four of the major banks in this country actively recommend to builders to seek this type of funding. OH and it does not exceed 80% LTV for the biggest player in the industry.

    This... rampage... that you are on against syndicated mortgages sounds more like someone who is simply fighting change, or is afraid of losing their own investor pool.

    This product has been successful in other countries for years, with a lower loss rate than traditional private mortgage investment products, and a similar or better rate of return.

    I stand by my comments originally however, if anyone is asking that these products, and the referral fees paid, be stymied - then it needs to be opened up for the entire industry and all referral fees paid to mortgage brokers. There are many products that a broker receives a referral fee on, this is just one of many. It is in truth no different than the broker who sends a deal to a lender because they earn more, get loyalty points, or have minimum funding targets - and there is not one broker in this country that can state they have never done that.

  • Anonymous just to irritate certain people on 2014-12-09 12:47:21 PM

    LOL - Funny Keith, so I chose to use the moniker.

    It sounds to me, from the commentary on this and other sites on articles about syndicated mortgages, that there are one or two people who are on a witch hunt against this product. Nothing more, nothing less.

    If anyone actually bothered to take the time to investigate these products you would discover that the vast majority of investors in the product come from investment advisers. That and the vast majority are upper middle class, or wealthy Canadians, who have the extra dough to invest. Also, the loss rate over the past 10+ years is lower than almost any other investment product on the market today.

    So, yeah... if investment advisors, banks, etc recommend this as a sound investment product for their clients, and they all are governed by the securities commission and federal law, that means that this product actually has MORE oversight than say... mutual funds, which are only governed by one governmental body.

    Will these always be the best investment? Probably not. Will there always be zero loss? Probably not - no investment is 100% secure. Is this a viable option for diversification of an investment portfolio... well it has been for over a decade. I myself have been an investor in the product for five years, and with the exception of one project that ran late, I have been paid out on time for every project and made very good money on the investment.

    Will I never lose money on it? No, I could - but I could with mutual funds, private mortgages, and any other investment product too.

  • Ron Butler on 2014-12-09 2:55:48 PM

    Keith who clearly works for the referral payers or why be afraid and hide your name? Canada is a free country but not using your name is not a function of nationality it is a function of cowardice or subterfuge.

    Really quickly, your lack of private mortgage knowledge is breathtaking: I never talked about "pooling investors" you are talking about a MIC which I do not operate, every mortgage investor we have is named on title, we do very few second mortgages mainly first mortgages. I have read a thousand mortgage charges but since I mainly broker private first mortgages it is meaningless. Basically every point you made is false blather. How the heck can Ron Butler who was one of the first online mortgage brokers in Canada be against change? Makes no sense. I am worried about losing investors? More pure whimsy, none of my investors would go near a syndicated development mortgage with a 10 foot pole.

    Every point you raise is false or just plain crazy. Syndicated development mortgages "have been successful in other countries for years" okay.............. whatever you say, but actually............... I call shenanigans on that one. Would those years have been 2008 / 2009 in Florida and Arizona and Nevada and California??? Really secret Keith? I mean...... really?

    I can introduce you to about a thousand mortgage brokers who will tell you they have never sent a mortgage deal to a lender just to achieve higher compensation and you could hook them up to a polygraph. No problem. There are a lot more honest mortgage brokers in this country than you apparently know.

    "irritate" clearly you know what it is to feel itchy but you actually make rationale points.

    These products SHOULD be sold through investment dealers. That is my POINT. The "witch hunt"" you are talking about is easy to understand: if a product offered advisors an 8% referral fee in the investment world everyone who took that money would be adequately insured, documented and their compliance departments would have given them the biggest vetting of all time. Having investment people sell it makes sense, let that industry handle the fall out. I don't want it in my industry.

  • Anonymous just to irritate certain people on 2014-12-15 4:24:23 PM

    Wow Ron, you really don't like it when someone challenges you do you? It is interesting how you almost always resort to personal attacks on people's character, especially if they do not use their full name.

    I can't wait to see how you reply to this one!

  • AS on 2014-12-18 1:48:17 PM

    I don't think mortgage brokers should be in the business of recommending investments.

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