Is Your Bank Mortgage Really Fair – From Your Friendly Vancouver Mortgage Broker

Is Your Bank Mortgage Really Fair – From Your Friendly Vancouver Mortgage Broker

Anyone who is somewhat savvy about mortgages knows that there are government agencies that keep tabs on what the banks are doing when it comes to mortgages. But, these agencies don’t see everything that goes on.

Also, banks are also somewhat self regulatory when it comes to how they disclose the compensation and the manner in how their reps recommend the suitability of a mortgage might be so these regulatory agencies can’t be fully aware of everything the banks are doing.

One issue of concern centers on the process the banks use when they refer a mortgage applicant to some other lender.

As an example, let’s look at what the RBC (Royal Bank of Canada) does when a mortgage applicant doesn’t qualify under their procedures. What they do is to refer the applicant to their AMS (Alternate Mortgage Solutions) group. These employees, which work for RBC, then dish out those applicants to other mortgage lenders. The RBC mortgage representative receives a commission when the mortgage is approved.

This might seem like a standard mortgage practice and one which requires that a mortgage broker’s license, but that is not the case. Also, the employees of the bank that refer the applicant to the another lender are not constrained by the same provincial laws.It is against the law to broker a mortgage without a license. The reason cited is because all bank employees are subject to strict federal laws.

Protection for the mortgage applicant is quite different from what is required for the bank versus what is required for the individual mortgage broker.

For the individual mortgage broker, it is the province which sets the rules in how the broker can conduct their business. Brokers can be audited and even sanctioned publicly if they break any of these provincial rules.

However, this does not apply to the mortgage representatives who work for banks. There is no government agency that audits them or performs other monitoring features. They also do not have to follow the compensation disclosure regulations which mortgage brokers have to follow. All of these things are up to the bank to monitor on their own.

There are many people who believe that these types of mortgage activities performed by the banks are governed by the OSFI (Office of the Superintendent of Financial Institutions), but this is not the case. The role of the OSFI is actually concerned with how solvent and sound the bank operates but does not perform the activity to intercede in the bank’s daily activities because it does not have the authority to act in that capacity.

The agency that does have the ability to perform this task actually lies with the FCAC (Financial Consumer Agency of Canada) which is the watchdog for protecting consumers.

The FCAC is an excellent regulatory body and deals with the issues of credit disclosure costs and the disclosure of mortgage penalties. The drawback though is that they deal with systemic issues and not individual situations or the practices of individual bankemployees.

The FCAC does not address what is meant by a suitable lender or have competency rules when it comes to mortgages, nor does it audit individual bank mortgage reps or their conduct. Additionally, the FCAC does require that bank mortgage reps be educated or licensed or post the wrongdoings of a bank mortgage rep.

That means it’s up to a bank to set and enforce its own specific competency, suitability and market conduct policies within general federal guidelines. In many ways, this makes banks their own overseer.

When a bank mortgage rep passes you along to another lender, you don’t really know who or why you’re dealing with them which is a risk in itself. There are banks that refer applicants to other brokerages or lenders with whom they have a business relationship, so the bank may not be referring you to someone who gives you the best rate.

The banks on the other hand, contend that their own self-governing regulations are just as strict as provincial regulations. They defend this position by saying they have strict conduct rules and perform their own stringent internal training, auditing and monitoring of the activities of their employees when it comes to mortgages.

The drawback countered by others that although this internal self regulation is fine, it’s always up to the bank’s management to chastise an employee. In some instances the bankmay be more lenient for the sake of conducting business.

Some observers believe the banks should be more transparent when it comes to disclosure always and not just when there is a complaint. It is also believed that problems should be dome through an outside arbitration process because complaints are largely managed internally by the banks.

All of that is true. But when it comes specifically to suitability and compensation conflicts, the goal should be to fully disclose them always, and not just address them when there’s a complaint.

Although not all mortgage brokers are on the up and up all of the time, the bottom line is that banks have no proper regulatory agency to watch what is going on. Banks are self- monitoring when it comes to a bank making a mortgage recommendation. These observers feel this is a role which should be assumed by the FCAC.