'Escalating lender incentives' for Realtors troubling, say brokers

'Escalating lender incentives' for Realtors troubling, say brokers

The apparent "escalation" of lender incentives for Realtors is raising broker concerns around disclosure and the potential dangers for clients.

“Nominal incentives or gifts I can understand,” Ad Lakhanpal, with Mortgage Alliance in Oakville, Ont., told MortgageBrokerNews.ca, “but there seems to be an escalation in the incentives that some lenders have started paying to the real estate agents, with at least one now offering direct commissions, and not just points. That escalation is a real concern because that kind of commission needs to be disclosed to the client by either the bank or the real estate agent. Also is it going to be in the best interest of the client?”

The cautionary note comes as lenders enter the home stretch in the race to close mortgages and meet year-end targets.  An Ontario mortgage manager at one of the Big Six is now circulating a flyer offering  a referring RE/Max  “broker office” 50 basis points on every residential mortgage that moves to closing. That compensation “conforms to RECO’s guidelines,” reads the offer, while highlighting a $1,500 commission on a $300,000 mortgage.

The flyer also offers another incentive, this time to the client, in the form of $1,200 in cash back at the time of the closing for mortgages approved between September 1 and October 31 of this year. The amount on that loan must be a minimum $150,000.

In the aggregate, that offer ups the competition for brokers, representing an almost unbeatable challenge, another agent told MortgageBrokerNews.ca.

It may also be misleading for the client, said Lakhanpal, worried that consumers may ultimately be ushered into agreements with a specific lender, and without the advice of a mortgage professional -- able to canvass the lending landscape for a product best suited for the short- and long-term needs and objectives of the client. That very real possibility makes disclosure to the client imperative, he said.

“Fifty basis points is a fair amount of money,” Lakhanpal said. “It is real and material incentive and must be disclosed to the client. It’s also concerning because we may see more lenders follow this lead and the client may simply rely on the real estate agent’s referral on what is probably the largest investment of the client’s life, without having had the benefit of a professional mortgage broker’s advice.”

  • Brian Matthey 2011-09-21 2:50:31 AM
    Interesting that mortgage brokers are held to a higher level of accountability and responsibility in ensuring a client is making the right choice in their decision to suit their current situation and their future.While RECO may confirm that this is compliant,how many realtors are disclosing the relationship and the fee and how many are going to be led down the garden path for the sake of an additional dollar in a realtors pocket?Makes you wonder where the Ministry stands on this issue?There goes the playing field tilting again!
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  • SW Ont Broker 2011-09-21 3:01:27 AM
    There is no doubt this is a problem. You all know as well as I that if we as mortgage professionals started to sell houses, that OREA and CREA would be all over us like a "fat kid on a smartie". It's all crap! If real estate agents are that greedy that they need their 5 or 6% commish (possibly 1/2 as such) and money from a lender - all is BS ... Are they putting their clients first - absolutely not - do they know what is best - absolutely not ! and ALL of them have no idea what to do on a good day as far a s a mortgage goes ! Most of them came to us ! Many realtors have bought Centum and DLC franchises - greedy or what !!! !I find it hard to believe that FSCO would allow this to happen !!! National started this years ago (they obviously had to go direct as their broker biz was suffering) and now we hear TD is getting into this game !! Boys and girls - you are looking up the wrong skirt !
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  • Mark Piers 2011-09-21 3:59:27 AM
    Well here is all I have to say about this ... Can we mortgage agents, through the broker channel, simply refer the client to our lender of choice (that best meets the clients needs)and in return receive 50bps FF?? Meaning the lender does all the work from inputing the deal, collecting documents, structuring the deal etc etc etc???

    I would entertain that option. Given the work that goes into placing a mortgage from start to finish, I cant imagine that this is a profitable move for the lenders or one that they can sustain.
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