Strict underwriting rules crucial to MIC success

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Brokers love liberal underwriting rules, but that makes for a possible conflict of interest if those mortgage professionals then take on the role of gatekeeper at a MIC, warns one mortgage expert.
 
“Brokers make money when mortgages are funded,” says Anisa Lancione, vice-president of mortgage development with Magenta Investment. “Malleable and liberal underwriting standards and practices facilitate mortgage funding thus creating a clear conflict of interest if broker owners control underwriting and clear and significant potential for breaching management’s fiduciary responsibility to shareholders.”
 
Lancione is one of a panel of speakers at the upcoming Mortgage Summit this Thursday at the Toronto Convention Centre, who will be explaining to brokers how to form an in-house MIC to better provide their clients with private lending through private investment.
 
But there are minefields to beware of, she cautions.
 
“The fundamental flaw in this business model is the clear and potentially disastrous conflict of interest between underwriting and business development/mortgage origination,” Lancione told MortgageBrokerNews.ca. “This is why all lenders including larger independently managed MICs ensure underwriting integrity by segregating the underwriting function.”
 
Co-panelist Christ Cheng, director of Gingko Mortgage Investment Corporation, sees that MICs are becoming a more popular solution for alternative financing and brokers need every advantage to get the deal done.
 
“There is an increasing awareness of alternative financing solutions out there,” says Cheng, “and with traditional lenders not approving loans like they used to, a properly packaged MIC can benefit brokers and clients as well.”
 
Cheng feels brokers will benefit from the collective expertise on the panel.
 
“We can show brokers how to package these deals,” says Cheng. “Most are not aware or understand how MICs work – we can show how MICs could be a possible solution given the new government B20 rules making it tougher to approve a loan.”
 
Barry Bernhardt, a counsel with McLeod Law LLP and another panelist at the mortgage summit, will be discussing the legal aspects of what a MIC is; what a MIC and do or be and not do or be under the Income Tax Act; and what the articles of a MIC should and shouldn’t contain.
 
  • Ottawa Broker on 2013-05-07 7:38:31 AM

    Magenta talking about integrity and ethics??? That is very interesting.........LOL

  • Anonymous on 2013-05-07 8:38:07 AM

    Make no mistake, there is an ironic hypocrisy here. For years, there was no separation of church and state at Magenta, and probably still isn't. I wonder what their true motivation is in helping brokers build internal MIC's. If you build a private MIC, you play the role of both sheriff and outlaw. Until you have scope, there is no other reasonable alternative, especially where investors would be concerned. They want you to man the helm.

  • ON Broker on 2013-05-07 2:27:23 PM

    The Mortgage Summit could have chosen a better MIC to speak at the seminar. Just because Magenta is a larger MIC, doesn't mean integrity and ethics are a value they possess. Might be worth my time to attend the seminar just to ask some "ethic" questions and see how Magenta responds, considering the responses I have recieved when dealing with them directly on behalf of clients, has been less than ethical.

  • Leigh Graham on 2013-05-08 5:15:39 AM

    While it is possible that some mortgage originators disagree with Magenta's pricing, underwriting decisions, and costs of borrowing, especially in this market, these constitute neither moral nor ethical issues.

    Also, it is worth noting (via the Mortgage Summit program available via the link in the article) that Ms. Lancione is moderating the panel, rather than speaking on it.

  • Ottawa Broker on 2013-05-08 9:47:08 AM

    None of the Magenta issues I have dealt with involve their underwriting decisions, pricing or cost of borrowing. It deals with ethical procedures and the habit of taking advantage of clients taht are in a tough position. Most of this happening after the Magenta mortgage has funded or when it comes time for the client to leave Magenta as they are in a better position credit wise and can be place with a sub prime lender like Equitable or Home Trust. Take a look at Magenta's full mortgage charge and review it closely, you will be surprised, as are most brokers/agents when they do look at it.

  • Leigh Graham on 2013-05-08 11:49:10 AM

    I submit that a mortgage broker or agent who is surprised by Magenta's charge terms is one who did not read them prior to recommending their products to a borrower.

  • Susanna Penning, AMP on 2013-05-08 12:11:12 PM

    I am shocked at some of this running commentary. As an Ottawa agent, never once have I felt that Magenta's integrity was misaligned. In fact, as a niche lender for tougher deals...they have been instrumental in leading many of my clients to a road of recovery. Perhaps this negative commentary speaks more to the agents' ability or understanding of the alternative space? Magenta makes every effort to fully disclose their conditions, fees, pricing and policies, and have always been available for further review and discussion. It is the agent's responsibilty to ensure a suitable fit for the client, as well as discuss exit strategies. MIC's serve a role in our industry, how they price to ensure a sustainable/profitable model for their shareholders is not a question of ethics.

  • Ottawa Broker on 2013-05-08 1:34:57 PM

    Did you know that if a client doesn't notify Magenta 60 days prior to renewal that they are not renewing with Magenta, they will be assessed a "non renewal" fee???? did you know that if the client changes their banking info, they are assessed a fee in the hundreds of dollars???? a lenders commitment does not list all the fee's and charges a client will encompass when dealing witha lender. I ahve been in the iundustry for over 18 years, adminster private money for numerous clients, and i know that 95% of broker/agents do not take the time to read a lenders full mortgage documentation, if they have even ever seen the mortgage charge. Contact a lawyer that has done a Magenta mortgage, ask for the a copy of the full documentation, I am sure you will be VERY surprised.

  • Leigh Graham on 2013-05-08 2:02:22 PM

    @Ottawa Broker - I submit once again that a 'surprise' exists only when one does not examine fine print ahead of time. While I concur (with disappointment) that it is possible that 95% of brokers/agents do not read a lender's full mortgage documentation, this does not constitute an ethical issue on the part of that lender.

    To be clear - I have been faced numerous situations with Magenta over many years of lending their money, where costs were higher than I would have preferred to see my clients pay. This cannot be considered a moral or ethical failing on their part. To agree with Ms. Penning - Magenta (as an example) has been instrumental in improving the financial circumstances of many people.

    We are not debating the expenses, nor are we debating even whether the expenses are appropriate. Magenta does not force people to borrow their money. This conversation originated with questions regarding Magenta's integrity and ethics. Fully disclosed costs of borrowing & costs of doing business do not constitute moral or ethical issues, as high as those costs may be.

  • Ann T on 2013-05-10 12:23:18 PM

    Magenta has a fiduciary duty to its investors not to those taking mortgages. Too many agents are blaming things such as unexpected fees on lenders due to their own lack of due diligence. Many FIs' standard charge terms are available on the internet to easily review. If you can't get a copy of the standard charge terms online or from the lender directly, there's nothing stopping you from requesting a copy from the lawyer's office.

    We are the ones with a fiduciary duty to our clients. Just because we may get a deal approved, doesn't mean it's in the clients' best interests to move forward. Plan an exit strategy when placing clients with alternate lenders with high rates and fees so that clients know what they need to do to improve their situation in the future if they do opt to proceed.

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