“It’s absolutely overdue to have a standardized penalty,” Paul Sidhu, president of Safe Money Mortgages, says. “There’s so much confusion in the industry around penalties and different lenders calculating penalties differently – even the brokers get confused sometimes.”
While some argue for a clear-cut rules across the industry, others argue it’s just not feasible.
For her part, Sally Kwan of ETC Mortgage argues there are just too many types of lenders – from monolines to federally regulated banks – and various regulatory rules they each follow to properly implement a standard.
“But I do agree that lenders have to be transparent and upfront, and tell the clients how the early payout penalty will be calculated,” Kwan tells CMP. “Lenders, without having to be asked by the client, should automatically give clients a step-by-step calculation of the penalty.
“Few banks do this for the client. Most of the time, the branch says they don’t even know how the penalty is calculated. Clients are quite at a loss, and they’re not happy.”
That lack of clarity is the problem, according to a number of industry players.
“The lack of transparency is a problem. If the five big banks are going to charge these penalties and then bury them on page 13 of the mortgage commitment, that’s totally unfair,” Geoff Del Grande, an agent with Rock Capital Investments says. “Banks need to be more transparent with how penalties are calculated.”
It’s an age-old debate, but one that is increasingly on the minds of brokers who are sometimes overwhelmed by the various calculation methods used by lenders.