A broker channel lender is endorsing the idea of client exclusivity agreements, arguing the time has come for an industry-wide discussion on those controversial but, perhaps, increasingly necessary contracts.
“Conceptually, I am supportive of exclusivity agreements,” Boris Bozic, Merix Financial president and CEO, told MortgageBrokerNews.ca . “I think it's time the industry looked long and hard at implementing the practice. The brokers job is to not to just educate the borrower, however, that's happening with greater frequency. As the saying goes, time is money. Brokers should have the means to be compensated for their time and effort.”
The comments echo those of IMBA President Albert Collu, responding to growing broker frustration with the number of clients taking their preapprovals and lender commitment letters straight to the bank. Those customers are effectively leveraging broker time and energy to win themselves better rates at the Big Five, with banks revising initial rate offers only after clients turn up with broker-arranged offers in hand.
Brokers are now scrambling for ways to stem those kind of losses as housing markets continue to cool and the banks ramp up efforts to meet year-end targets by using mortgages as loss leaders.
Exclusivity agreements, currently used by several brokers, penalize clients for using brokers to get better rates at the banks.
Collu is prepared to lead a provincial discussion on regularizing exclusivity agreements as a best practice, similar to the Realtor agreements that bind home sellers to their real estate agents for a contracted period of time. The penalty for breaching those contracts is generally 2.5 per cent of the sales price. For mortgage broker agreements, that amount could be set as high as 1 per cent, that in most cases the threat of a penalty would be sufficient to scare off clients with no intention of following through on a broker offer.
“I’ve often found it odd that Realtors have implemented exclusivity agreements with clients and we, mortgage brokers, have not,” Collu, a veteran broker and president of Argentum Mortgage and Finance, told MortgageBrokerNews.ca. “With proper discussion I would be supportive of implementing such a process for mortgage brokers, but I would also like to see most mortgage brokers moving their sales focus off rates and more towards sound consultation and advice for consumers.”
Brokers commenting on an earlier MortgageBrokerNews.ca article this week were divided on the idea of an industry-wide adoption of exclusivity agreements. Some argued that they would erode broker market share and be too onerous to enforce. Others who rely on those agreements for both B and A clients argue errant customers are usually prepared to settle rather than head to court.
Brokers in both camps are now looking to lender input, acknowledging the consequences of client flight reverberate from one end of the broker channel to the other. But Bozic is also asking them to look at their own actions.
“To play devil's advocate, would brokers be willing to sign an exclusivity agreement with lenders?” he told MortgageBrokerNews.ca. “Doesn’t the same principle and issues apply to what lenders are experiencing, time and effort?”