Time to fight back on penalties, says broker

Time to fight back on penalties, says broker

Time to fight back on penalties, says broker
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.”
 
35 Comments
  • Murray Savage 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.
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  • Nova Scotia 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?
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  • Kiah Grant 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.
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