Standardized penalties could be a negative for brokers… and clients

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Standardizing mortgage penalties may be good in theory, but some brokers argue that the practice could end up hurting clients and broker business while benefiting the big banks.

“Be careful what we wish for. Standardizing penalties can work in two ways: They can be done in the posted way which is far more expensive for borrowers,” Jake Abramowicz of Mortgage Edge wrote on “Or, if the banks and monolines have the same penalty calculation then there's even less competitive advantage to the monoline lenders -- our true broker partners.”

The conversation was sparked by a recent post about a call for standardization for calculating early exit penalties for mortgages.

“We need regulation for penalties – every lender calculates them in a different way,” Paul Sidhu, president of Safe Mortgages told at the time. “I had one client that was hit with a $28,000 penalty at (one big bank) and we called the ombudsman and they couldn’t explain how it was calculated. TD wouldn’t explain it either.”

Sidhu’s belief is that standardized penalties would benefit clients.

However, some industry players argue that standardization could mean forcing all lenders to use the posted rate to calculate interest rate differentials – a practice popular among the banks but is not used by monoline lenders; thus eroding one of the competitive advantages for monolines.

“The banks have the much bigger (lobbying groups) and have the ears of several politicians,” Nick Bachusky of Verico The Mortgage Advisors wrote. “If this is done, it most likely will be in favour of the big banks.”

Bachusky, who used to work for a bank, provided more details on how employees are advised to handle penalties.

“The banks know what they’re doing and they know the rules,” Bachusky told “When I worked at the big banks they never brought us in and explained how to calculate penalties – they know it’s a problem but they also know they make them a lot of money.”
  • John Bargis on 2015-07-21 10:01:48 AM

    "Be careful what you wish for" - words of wisdom....Now that's logical thinking from a few who know their business well!!!!

  • Brad Currie on 2015-07-21 10:40:51 AM

    The more diverse the terms and conditions are, the greater the need for an independent expert to assist the consumer which is the broker. Also, changes the discussion with the client from the best "rate" to the best "mortgage". Bring on more differentiation!

  • Ron Butler on 2015-07-21 11:59:16 AM

    AS I said last time, standardized penalties = crazy, we live in a free enterprise society. Differences in penalty structures may suit different clients with distinct needs and goals.

    The point is honest easy to locate disclosure. Once that is readily available the problem solves itself.

  • th3uglytruth on 2015-07-21 9:35:04 PM

    "Standardizing" ain't the solution.

    Banks should be SUED for this highway robbery. Think about it....why would they add the "discount" given to the client to calculate the penalty? Would they survive doing business using posted rates?

    This profitable heist will not stop till ...

  • bruce davison on 2015-07-22 9:58:25 AM

    Yes, let's keep the consumer dumb, and confused so we can (appear to) be the heros in their financial armour ??
    As was said, the issue is not standardized penalities- all lenders borrow differently and have different profit formats. WHAT IS AT ISSUE IS THE THE CALCULATION- IT SHOULD BE SIMPLE TO CALCULATE AND PART OF THE APPROVAL DISCLOSURE. It should be soooo simple, even a broker could work it out.

  • John Bargis on 2015-07-22 10:29:00 AM

    Bruce, pardon my ignorance, but did I miss something?....Who's suggesting that we "keep the consumer dumb, and confused so we can (appear to) be the heroes....?"

  • Brad Currie on 2015-07-22 10:38:05 AM

    Bruce... what I am suggesting is the opposite of keeping the consumer dumb. It is educating them in difference in mortgage terms and their impact. Education builds trust, trust builds long term relationships with clients.

  • Ron Butler on 2015-07-22 10:38:27 AM

    Actually, I mainly agree with Bruce on this one, when I read the main text and the comments in the other article on this same subject the day before there were a couple of posts suggesting that the complexity of the penalty issues underlined another reason consumers would need to use a broker.

    I thought those posts were a bit self serving as well. We should all favor consumer advocacy and easy to understand, easy to use, simple and clear penalty calculators are a benefit to the consumer. The idea that opaque penalty information creates a greater need for mortgage brokers is just the wrong thought process.

  • th3uglytruth on 2015-07-22 12:55:02 PM

    IF brokers really want to be advocates...reduce or completely eliminate using lenders who abuse this system.

    Until then, why would these parasites stop?

  • bruce davison on 2015-07-22 1:21:38 PM

    Brad- I am all for educating the consumer, but perhaps I misunderstood the comment "Bring on more differentiation!" as a reason for the consumer to need to use the services of qualified and smart brokers. I too welcome TRUE differences in features being made by the lenders to the public, but to couch lender speak designed to confuse the public ( not as you use the word to differentiate themselves) as somehow a benefit to the public, and indirectly to us as the translators, as being positive to our industry is not correct.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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