Time to fight back on penalties, says broker

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One broker has decided that enough is enough, and that it is time for brokers to fight back.
 
“They’ve declared all-out war on us,” Jon Strickland, a broker with Invis Mortgage Intelligence, says of the major banks. “It’s time we fought back. We should all tell them (where to go).”
 
Strickland’s personal Rubicon was crossed on Friday, when a deal of his which was supposed to close June 14 “went sideways because of the excessive penalty charged by RBC.”
 
The client had been with MCAP, but according to Strickland was lured away by a personal banker and put in contact with a personal banking representative at RBC. The client moved the mortgage to the bank; then, upon attempting to refinance – was told there would be over $12,000 in IRD penalties to pay – as compared to $3,500 if he had remained at the monoline MCAP.
 
“He was penalty free with MCAP,” he told MortgageBrokerNews.ca, “but this guy’s personal banker pulled him out of MCAP to put him with a banking rep from RBC. Now my client knows what the banks are all about.”
 
For Strickland, it represents where the government should be focusing its concerns on the mortgage industry – not on rate or qualification, but on business practices.
 
“The finance minister is truly focusing on the wrong things in the mortgage world,” says Strickland. “The playing field needs to be leveled to protect the customers from activity like this; the client had no idea how bad it was going to be.  I have paid out RBC many times before but the penalties have never been this bad.”
 
And unfortunately for Strickland, this won’t be the last story of his to tell.
 
“To top it off I am about to lose another deal for the exact same thing,” he says. “I’ve lost two deals due to excessive penalties; the client had no idea how bad they were going to be. Sad really.”
 
Part of Strickland’s “fight back” includes suggestions for finance minister Jim Flaherty.
 
“Standardize pre-payment penalties throughout the industry, or at the very least make clients sign a document that outlines how it is calculated with an actual example situation,” he says. “Many people would bail at that point, as it is really horrible. People claim it was never mentioned or explained.”
 
Standardize legal fees when clients are in trouble and going power of sale, or threatened with legal action. “Thousands of dollars charged to write a letter is all too common,” says Strickland. “When we try to help these people from time to time, we often can’t get it done due to excessive legal costs.”
 
The banks benefited from B20, but it did not do anything to help or protect Canadians, says Strickland.
 
“It forces people to continue to pay unsecured rates and never pay off the credit cards, it could have been done better by credit management (i.e. closing consolidated debts) if TDS is a certain level after closing, various tiers could have been introduced to ‘protect consumers’.”
 
Credit cards and lines of credit have saddled consumers with sometimes brutal payments and interest charges. Prime is 3 per cent, yet credit cards rates often exceed 20 per cent, Strickland points out.
 
“How is this good for consumers?  The focus on the mortgages was due to being an easy target to implement,” he says. “It doesn’t make it right.”
 
  • Murray Savage on 2013-06-18 9:32:12 AM

    I'm not surprised. I am running into this a lot especially with RBC and CIBC. I just lost one where a client was in year 4 of a 10 year fixed rate at CIBC. the prepayment penalty was over $20,000 on a mortgage balance of only $145,000.00. now you tell me if that's not "Criminal". the Mortgage "Expert" at CIBC had her convinced she was doing the right thing 4 years ago and sold her a 10 year at 6.1%. The Client is a 77 year old fixed income pensioner that came from the generation where "whatever her banker said she should do, she would do." We all meet potential Clients that deal with the Bank because "Banks know best". Maybe a few Class Action Lawsuits and Media Coverage of this type of immoral, unethical Lending Practices would change some of that.

  • Nova Scotia on 2013-06-18 9:38:00 AM

    It doesn't sound like this broker comparing apples to apples. Nowhere does he explain how much of the term was left. Payout penalties are meaningless without knowing the remaining term as well as the current rate for the borrowers. This isn't rocket science. Maybe the RBC mortgages had 4 years left. If a client is going to break their mortgage soon after signing on, the penalties are obviously going to be higher. I agree on standardinzing the penalty for the entire industry though. Lenders have the right to make a profit and earn money and client's sign on the dotted line quite willingly to get a good rate, but then when they see a better rate, they're upset at the penalty which they knew about up front. I think an "all-out war" declaration against us brokers is a little sensational. Or am I just being too realistic and pragmatic?

  • Kiah Grant on 2013-06-18 9:46:26 AM

    This is just one examples of many, I went and bought a new car for 37k and I received a .9% loan over 7 years and did not have to produce any income confirmation. People don't spend and get into debt on their mortgages, the problem starts with easy and predatory credit. Perhaps our industry needs to come together to work with the Ministry to enlighten them on what we see in mortgage debt consolidation scenarios. I have an issue fundamentally with telling Canadians they should not own a home, that they should continue to rent yet on the other hand let them acquire credit that will hamper them from owing for a long time. Everyone should feel owning their own home is achievable and a positive, not something that can contribute to the downfall of an economy and the recent B-20 does not do that.

  • Kiah Grant on 2013-06-18 9:48:20 AM

    This is just one examples of many, I went and bought a new car for 37k and I received a .9% loan over 7 years and did not have to produce any income confirmation. People don't spend and get into debt on their mortgages, the problem starts with easy and predatory credit. Perhaps our industry needs to come together to work with the Ministry to enlighten them on what we see in mortgage debt consolidation scenarios. I have an issue fundamentally with telling Canadians they should not own a home, that they should continue to rent yet on the other hand let them acquire credit that will hamper them from owing for a long time. Everyone should feel owning their own home is achievable and a positive, not something that can contribute to the downfall of an economy and the recent B-20 does not do that.

  • Alex Vassallo on 2013-06-18 9:55:15 AM

    Much to agree with here. We definitely need more transparency and yes there are lots of people out there that would greatly benefit from debt consolidation. I do believe though that we need clearer and upfront disclosure of penalties and fees. Clients by nature don't understand or take the time to read the fine print so they rely on us to make things clear. Sometimes we fail ourselves. All too often we think short term when this is a long term decision for the buyers/borrowers. The Broker industry needs to step up it's game. perhaps it's time we run industry campaigns to increase our consumer awareness as to the benefits of using a Broker.

  • AB on 2013-06-18 10:00:34 AM

    It's not just bank reps at fault. Brokers who sell 10 year mortgages in the form of interest rate fear mongering as a marketing strategy (but really it's because the pay is higher and they can't compete on 5 year money) are not considering that people get hired, fired, divorced, sick, etc, and life just happens. 10 year terms were invented for profitability. In the end, if a client can read a commitment, and they have a good broker reviewing it with them, they should know about what they are signing. Agreed, standardization would help. But this whole victim mentality is getting tired.

  • Linda Rausch on 2013-06-18 10:01:55 AM

    Murray - I faced the same thing with a client I had in Abbotsford BC...small CIBC mortgage, $20,000 payout penalty. There is a lawyer in BC that is taking on CIBC in regards to these outrageous fees...I have the name somewhere, and if I can find it, I will post it on this thread.

  • Weskos on 2013-06-18 10:23:36 AM

    Just to touch on the Nova Scotia comment, the thought that having 4 years remaining on the term = larger penalty is just not true. In fact the way the big 5 are posting their fixed rates makes it so that if you are in the 2-3 years remaining on the term = larger penalties than 4 years. I know that would not make sense to most people in the general public, but brokers understand that this is the truth of the situation. The "transparency" the government wants on the IRD penalties will not solve the problem, although it is not a bad thing. What would work is posting 1-5 year penalty terms on the Bank of Canada website, much like the 5 year bench mark rate for qualifying purposes. that is my two cents.

  • Ron Price - DLC on 2013-06-18 10:26:15 AM

    What is the matter with CAAMP (I think we know)? CAAMP represents lenders and brokers and therein lies the problem. Question. Why isn't CAAMP all over this lack of disclosure and questionable business practices.

  • Linda Rausch on 2013-06-18 10:31:41 AM

    Good question Ron...why isn't CAAMP all over this situation? Issues such as these are why we pay our membership fees...yes? Change can happen folks, but we have to push collectively...

  • Cory on 2013-06-18 10:34:31 AM

    @AB Can't argue that commissions are higher on 10 year product (140-160 BPS), but no better than 5 year trailer product (!30-150 BPS) with renewal terms (+25-50 BPS), so the argument about commission, in my opinion, is not real strong. 5 years from now many clients will look back in time and wish they had taken the 10 year mortgage. It is pretty hard to convince me that is based around fear mongering, I would say it is a given that rates in 5 years will be higher than 3.69%. It is not for everyone, but it is for many. Best business practices should include considering a comparison today vs. the future as well as comparing penalty calculations. Brokers moving 10 year product are doing it, banks selling high IRD product are not. Standardizing that will level the playing field, which was the point of the article.

  • Anthony on 2013-06-18 10:48:08 AM

    In reply to "AB"...FYI:

    under Canadian law, all financial institutions holding mortgages with a term longer than 5 years cannot charge more than the maximum penalty of 3 months interest to break your mortgage...one of the benefits of 10 years terms...

    As for the latter comment, I understand your lack of empathy, but do not agree to it...mtg. brokers should be sympathetic with the public if only because we do understand the industry and they unfortunately do not...should we all now be expected to fully understand medicine, law, pharmacy, mechanics, etc...just because we use the services of professionals in these fields from time to time, or do we expect the best from them and hope for service provided by persons who value integrity and honesty and are expert in their field...I myself am mindful of any service provider's credentials and expect them to offer their best at all times... and when I get stung, it sucks and more importantly, will always be remembered...

  • woodd7 on 2013-06-18 11:11:42 AM

    Lawyer is Kieran Bridge. I am a little confused as the Monolines charge IRD penalties. Both are fully contractual and as a Bank lender I see the same huge penalties facing the clients. Penalties are a problem yes, but to single out the Banks, wow. another reason for the Banks to keep puling back from the Broker channel

  • Paul Bath CPMB on 2013-06-18 11:13:55 AM

    I have been teaching Interest Penalty calculations to Mortgage Agents and Realtors for years. It always surprises me how we can never agree with the Bank numbers.
    Its also unsettling that when Borrowers do pay the penalty, they are often not given credit for the "prepayment option" available to them which could lower the penalty considerably. I have had clients go back and ask for a re-calculation and are either given a refund due to the "error" or a new payout statement with the prepayment calculated in.

  • Broker on 2013-06-18 11:30:16 AM

    @wood7

    the IRD with the monoline noted is based upon their current rate vs the discounted of the comparable remaining term, VS RBC taking the discount that he client received (1.85%) at closing and deducting it from their 2yr rate ...3.14-1.85% = 1.29% used for the IRD then doing the 28 months remaining... hence the massive difference.

  • Linda Rausch on 2013-06-18 11:34:13 AM

    Paul: Thank you for your comments on interest penalty calculations. How timely! How can we get this information out to the masses? CAAMP needs to investigate this matter, and ensure their members are all acting in good faith. Don't they? I will be contacting CAAMP in Alberta, and referring them to this thread. For those of you in other provinces, please do the same. We are losing out on helping our clients because certain financial institutions are charging such a high payout penalty, the client is unable to move their business. Holding clients hostage is not ok, doesn't matter how you coat it or what you call it. Lawyers have the Law Society that monitors their actions. Doctors have a society that monitors theirs...does CAAMP do anything to keep everyone above board? We can make a difference in how our industry is perceived and run...if I didn't believe that, I would find another way to earn a living. And, wwodd7, thank you for the lawyer's name...

  • Linda Rausch on 2013-06-18 11:39:32 AM

    Broker....Iyiyi...scary isn't it...

  • Weskos on 2013-06-18 11:40:04 AM

    To woodd7.... the difference is that many of our monoline do not have the 1.85 discount in their mortgage. If a person gets a 3.09 from one of my lenders today, it may be a discount of .20%. They do not post rates like the banks and credit unions do. So your IRD with them will be significantly less, in most cases I have seen only 3 month interest from my monolines who operate this way. You are dead on correct on the RBC calculation you listed. With many monolines the .20% discount takes the IRD out of the picture. This is the issue. It is all about how the banks post rates to have the discounts built in and how they post the 1-3 year term from 3.00-3.50% now to maximize penalties.

  • Marie on 2013-06-18 11:40:48 AM

    in reply to woodd7, yes mono-lines have IRD but its how its calculated. Most banks base a penalty on the posted rate and what discount they gave off of that to the client.I have done numerous calculations on different mortgages where the penalty with the bank is about 7k and the penalty with the mono-line or bank that doesn't have posted is less than half of that. So yes its only the banks that have posted rate where you get these crazy penalties, worked for one for almost a quarter of a century so i am quiet experienced with the calculations.

  • Bruce Schoenne - PaylessPenalty.com on 2013-06-18 12:07:26 PM

    Next time you have a deal that you could potentially lose over an excess penalty give us a call and see if our service can save you the deal and your client money on their penalty. We charge the client nothing for the service, we simply split any savings that we can get with them. If we cannot save them money there is no cost.

  • Paolo Di Petta | dipettamortgage.com on 2013-06-18 12:07:41 PM

    I may be preaching to the choir to the brokers on here, but this is our opportunity to shine. Very rarely (in any industry) does our largest competition give us a chance to highlight their biggest weakness to show our value, yet here it is.

    And it's not the first time. The collateral mortgage fiasco, the RBC offshoring PR nightmare, and countless other opportunities. Still, all the ads I see from other brokers are about rate.

    We need to stop missing these opportunities. We're not rate, we're the people that can help people avoid these terrible one-sided bank policies. Until we make that clear in our message, we're fighting with both hands tied behind our backs.

  • Paolo Di Petta | dipettamortgage.com on 2013-06-18 12:07:44 PM

    I may be preaching to the choir to the brokers on here, but this is our opportunity to shine. Very rarely (in any industry) does our largest competition give us a chance to highlight their biggest weakness to show our value, yet here it is.

    And it's not the first time. The collateral mortgage fiasco, the RBC offshoring PR nightmare, and countless other opportunities. Still, all the ads I see from other brokers are about rate.

    We need to stop missing these opportunities. We're not rate, we're the people that can help people avoid these terrible one-sided bank policies. Until we make that clear in our message, we're fighting with both hands tied behind our backs.

  • Bruce Schoenne - PaylessPenalty.com on 2013-06-18 12:07:44 PM

    Next time you have a deal that you could potentially lose over an excess penalty give us a call and see if our service can save you the deal and your client money on their penalty. We charge the client nothing for the service, we simply split any savings that we can get with them. If we cannot save them money there is no cost. PaylessPenalty.com

  • woodd7 on 2013-06-18 12:10:13 PM

    The method of calculation of the penalty isn't the issue, as specifically mentioned, some of the monoline calculate it in a different manner, the problem is, it isn't consistant and it requires disclosure. If a client wants to break a term, or anticipates doing a transaction before the end of a term they should be in a variable closed or an open term, where the IRD issue doesn't arise. With full disclosure, (I thank everone who has used the 1.85 discount figure, to explain to me the calculations used by the Banks) and even without there is a true contract in place. Public awareness and the courts may help to bring this to a more consistant process, in the mean time when a client comes to me with what is obviously poor disclosure or even in some cases none, from their broker who sourced them to the TD or BNS, the credibility gap widens, I think we all have step back and remember a mortgage is a contract and as professionals we need to inform our clients of the details of the contract. period

  • Faye Drope on 2013-06-18 3:45:34 PM

    Oh but it is rocket science cause even the bank reps can't do a pre-payment penalty without sending out for it. If the client did a blend and extend then you try to break the term it is impossible to determine the penalty. How is this transparency? The penalties need to be standardized.

  • Ron Butler on 2013-06-19 5:43:27 AM

    Late last year the Federal Finance Ministry proposed that all chartered banks put a penalty calculator on their website; the client inputs their mortgage details and the calculation is binding on the bank. Somehow this has never been heard of again. Wonder why?

  • arshad amhmood on 2013-06-19 10:37:18 AM

    Good work ... I will stand with them. It is about time. And also tell clients about the Collateral charge when they do a Homeline Plan or a Step Credit type of product. They can NOT switch out without refinancing. Another trick to keep the clients tied to the banks. This is also never explained to the clients.

  • arshad amhmood on 2013-06-19 10:37:51 AM

    Good work ... I will stand with them. It is about time. And also tell clients about the Collateral charge when they do a Homeline Plan or a Step Credit type of product. They can NOT switch out without refinancing. Another trick to keep the clients tied to the banks. This is also never explained to the clients.

  • arshad amhmood on 2013-06-19 10:38:17 AM

    Good work ... I will stand with them. It is about time. And also tell clients about the Collateral charge when they do a Homeline Plan or a Step Credit type of product. They can NOT switch out without refinancing. Another trick to keep the clients tied to the banks. This is also never explained to the clients.

  • arshad amhmood on 2013-06-19 10:38:36 AM

    Good work ... I will stand with them. It is about time. And also tell clients about the Collateral charge when they do a Homeline Plan or a Step Credit type of product. They can NOT switch out without refinancing. Another trick to keep the clients tied to the banks. This is also never explained to the clients.

  • Linda Rausch on 2013-06-19 10:52:37 AM

    Just had a staff meeting here at Jencor in Calgary...other Agents tell me all the major lenders have payout calculators on their web sites now. Hmmmmm...I intend to check it out and will advise.

  • Bruce Schoenne - PaylessPenalty.com on 2013-06-19 10:54:03 AM

    If you go to our website (paylesspenalty.com) under the "stuff" link we have links to all the calculators for the banks.

  • Linda Rausch on 2013-06-19 11:13:23 AM

    Thanks Bruce!

  • gerry on 2013-06-19 3:26:55 PM

    Interest commentary, easy to point fingers to say 'say should have, could have' and 20/20 hindsight also works wonders. One doesn't know the circumstances and discussion between the client and the rep, perhaps the client really, really wanted a fixed term when VRM was the better way to go. Who knows what transacted between them. MCAP and all of the lenders charge the same penalty 'greater of three months interest or interest differential' to say MCAP whuld have only charged $3500 is nonsense, that may have only occured if the client has stayed with a closed VRM and not converted to a fixed term with MCAP. Stop blaming the institutions or the 'banks' monoline or virtual banks are same and have same penalties. All FI's (banks and monoline) disclose in their documents penalties to get out of the mortgage, the problem is the clients do not necessarily understand or perhaps care, they just want to get the mortgage. Very important to emphasize to the client what they are getting into and why and have frank discussion, the rep (broker, banker, candlestick maker) are advice givers based on discussion and requirements of client. We have all provided sound advice to a client to not take a specific term for a certain reason based on the discussion only to see the client change their mind for some other reason (comfort level to a fixed term etc). Time to get off of that high horse trashing the banks, I have seen just as many brokers do the same thing to a client because they got a 'premium' commission to sell a certain product, not perhaps in the client's best interest (it should be the only concern, but not always practiced). Best advise for client, deal with someone who is experienced who can provide better advice and recommendation(s) to the client providing the client with all of the information (penalties etc) and in the end the client decides. We all have to take responsibility for our actions. "Time to fight back" is not against the banks, you must include the monoline and virtual banks into the equation. The real 'fight' is to ensure whomever the client sees whether a broker or a banker is giving the client the best possible advice so the client can make an informed decision.

  • Nova Scotia on 2013-06-20 9:49:56 AM

    @ arshad amhmood - Why is a collateral mortgage 'a trick'? These are excellent products for some borrower. It makes getting additional bank products easy for some borrowers (such as LOCs or credit cards) with no additional legal fees. This is good for some borrower. I don't understand why so many broker slag the banks over everything. We NEED lenders and some brokers behave like they are adversaries... makes no sense. Lenders and brokers need each other.

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