What's the difference between a mortgage broker and a road rep?

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      For some first-time buyers, arranging financing is more daunting than the actual purchase of a home. There’s a glossary of terminology associated with taking out a loan, including variable- and fixed-rate mortgages, debt-service ratio, amortization period, maturity date, and mortgage insurance.

      Many first-time buyers look to a mortgage broker to help them stickhandle around these issues. But it’s not that easy because not everyone who calls himself or herself a “mortgage broker” is licensed to provide this service by the Financial Institutions Commission, which is the provincial regulator.

      The president of the Mortgage Brokers Association of B.C., Joanne Vickery, told the Georgia Straight in a recent phone interview that members of her association work with many different lenders to negotiate mortgage financing on behalf of their clients. Potential lenders include chartered banks, credit unions, and other organizations that provide money directly to borrowers. “We’re able to source business for a client, and put them into something that’s going to best suit their needs,” Vickery said.

      An independent mortgage broker is paid by the lender, so there is no charge to the consumer.

      Financial institutions, including banks and credit unions, also employ people who offer advice on mortgages, but Vickery emphasized that these people are not “mortgage brokers” in the true sense of the words. She prefers calling them “road reps”.

      “Road reps are technically employees of the bank,” Vickery said. “They are not mortgage brokers.”

      She emphasized that road reps who work for national companies, such as the chartered banks, are licensed by the federal Office of the Superintendent of Financial Institutions. She maintained that their first obligation is to sell products offered by their employers, which sets them apart from mortgage brokers.

      “Many mortgage brokers have clients who say ”˜my broker from the Royal Bank or my broker from the Bank of Montreal’,” Vickery said. “We say they’re not really brokers.”

      She said that MBABC is collaborating with the Financial Institutions Commission to educate the public on the difference between licensed mortgage brokers and those who sell products on behalf of financial institutions.

      “I’m not saying that the lenders from corporate [institutions] are telling their people to say, ”˜You’re a broker,’” Vickery stated. “That’s not really what’s happening, I believe. I believe that these individuals who are employees of the bank are calling themselves that because it’s easier. It’s easier for the consumer to understand.”

      The Canadian Bankers Association declined the Straight’s request for an interview on this topic.

      The Mortgage Brokers Act does not apply to employees of insurance companies, savings institutions, members of the Law Society of B.C., or any person acting for the government or any of its agencies. Samantha Gale, manager of mortgage broker regulation with the Financial Institutions Commission, told the Straight by phone that her organization has taken action in response to concerns over unlicensed advisors calling themselves mortgage brokers.

      For example, Gale said, people who are not employees of a financial institution—such as independent contractors who place mortgages with third-party lenders—are not exempt from penalties under the Mortgage Brokers Act. If they call themselves “mortgage brokers”, they could be penalized if they’re not licensed as mortgage-development brokers. For a first offence under the Mortgage Brokers Act, the maximum fine is $100,000 and individuals are liable to imprisonment of up to two years.

      “We only have a handful of people registered as mortgage-development brokers,” Gale said. “So my suspicion is that there is a lot more people out there working in this capacity for savings institutions that aren’t registered as mortgage-development brokers.”

      In November 2009, the Financial Institutions Commission issued a bulletin stating that it now has the power to issue a cease-and-desist order. However, Gale said that her office has not received complaints about specific individuals, which is why there haven’t been any enforcement actions. “We have responded to the problem and we have a process,” Gale said. “The problem is not getting the complaint information.”

      October is Mortgage Education Month, and to coincide with this, the MBABC is holding a series of seminars across the province. For more information, see www.findabettermortgage.ca.

      Follow Charlie Smith on Twitter at twitter.com/csmithstraight.

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      10 Comments

      Michael Castanaveras

      Oct 6, 2010 at 1:47pm

      Brokers are paid a commission by the bank. The commission value is based on the type (and interest) rate of the mortgage. So it's in the broker's financial interest to peddle whatever mortgage best suits the bank. Of course, a broker thinking long term will realize the value of repeat business from a satisfied customer and suggest a mortgage that fits the customer's needs.

      Ultimately, the broker works for whichever bank pays them the commission. The banks would much prefer not to pay that commission. A savvy consumer should have no trouble negotiating the same interest rate from bank that a broker would get form the same bank. The banks offer almost identical mortgage rates to the brokers (unlike term deposits), so getting a good rate just takes a small amount of shopping.

      glen p robbins

      Oct 6, 2010 at 3:06pm

      Oh please - its a wild west show out there. The low Bank of Canada rate has stifled bond yields, and banks cannot raise their interest rates.

      What they do instead is get nominees in behind MIC's --and since they control Equifax and credit agencies - they use any bad credit history as a rationale for rejecting applicants on a mortgage - forcing them to go to mortgage brokers where they can secretly find their wealthy clients higher rates of interest (in lieu of low bond yields) on their dollars.

      Further big banks received 50 billion plus in guarantees and buy-outs from the Conservatives - on what basis of accountability?

      For all intents and purposes, banks could be taken the government hand out on one hand - and foreclosing on the 'evidence' on the other.

      This mortgage broker business needs to be carefully re-examined by next government as part of overall consumer protection.

      BC Securities Commission needs to have oversight over this business--and a Robbins government would place David Baines of the Vancouver Sun in charge.

      14 6Rating: +8

      Juanita McNairn

      Oct 7, 2010 at 4:36am

      As a "Road Rep" for a major banking institution, I am paid straight commission just as a broker is and it is certainly in my best interest to develop long term relationships with my clients. This is accomplished by an excellent service level and putting clients in the right product for their situation. My interest rates and products available are at the same level as a broker's. In fact, we have products that we are able to offer that are not available to brokers. Also, a broker tends to get paid differently by different institutions, depending on offererings and VOLUME SENT TO THAT BANK. There is a great incentive for a broker to send volume to a particular lender in order to receive bonuses.

      10 9Rating: +1

      LA

      Oct 7, 2010 at 8:22pm

      As a mortgage broker MY first interest is my clients - to give unbiased advice so they can make an informed decision, and get the best possible product and rate, not that i make the biggest buck where-ever i can place the deal. If a lender has the best rate and my clients qualify and its a good fit for them, there's no question thats where i would place them, not to do them a disservice and place them elsewhere with a higher rate and where i can make more money.

      We also have a much wider circle of lenders and lending criteria to work with allowing us to work with all types of financing criteria. We don't work within one lending institutions guideline where the "trying to fit a square peg into a round hole" sceneria comes up as it is working with "one" bank. Its in my best interest to make sure all my clients have an exceptional experience otherwise i might as well pack my bags.

      Mark Piers

      Oct 8, 2010 at 9:38am

      With the possible exception of the last two comments I cannot believe the ignorance surrounding this topic, and by ignorance I mean ... UNINFORMED. If you are going to make comments on the differences between brokers and road reps, have the courtesy to first and foremost know what you are talking about.

      For example ... road reps ... there are good and bad. Yes they can offer some products that brokers cannot but only from that institution. There is no product on the market a road rep can offer that a broker cannot place elsewhere as brokers have access to dozens of companies.

      Do brokers get paid more based on volume? Absolutely and so do the road reps. So does anyone in commission sales ... its called business.

      Here is the one bottom line distinction ... brokers work for the client with no loyalty to one particular company. Road reps are employees ... there foremost responsibility is to the lender they work for ... not the client. Before you road reps start tearing into me for this one ... take a look at who signs your paycheck.

      Regarding best rates being offered by the bank ... that's a joke!! Banks will only provide the best rate when they think they may lose the business. Brokers for the most part only deal in discounted rates. For 99% of mortgages place by a mortgage broker the commission structure is fairly standard across all lenders. Actual commission amount is based on the size of the mortgage ... NOT THE INTEREST RATE. This is not the US ... we do not work on a point spread system here.

      Listen, both road reps and brokers have a lot to offer the consumer if they do their job properly. Clients, above all, need to work with someone they trust. Take the time to get to know who you are dealing with and make sure it is someone who has a reputation of character and integrity ... whether it be a broker or a road rep.

      11 7Rating: +4

      Tanner Coles

      Oct 8, 2010 at 11:20am

      Joanne, nobody could have said it better. Your article is written purely based on facts. As a "mortgage broker" I will attest that we have access to numerous lenders, including private lenders,with different products to suite each individuals needs.

      "Road reps" do not have products that are not available to brokers. "Road reps" are only able to offer products from their employer. My firm has access to over 90 different lenders with numerous different types of mortgage products.

      This is not an article about who is better than who; this is an article stating the factual differences between two types of mortgage consultants.

      There are some comments directed to the above article which are completely false and need to be addressed.
      First, "mortgage brokers" are not paid based on the interest of the mortgage. We are paid a finders fee by the lender, on the mortgage amount. Again, we are paid on the mortgage amount, not the interest rate. This ensures that brokers are completely unbiased. We also have the ability to shop from over 90 different lenders that enable us to find the mortgage product best suited for our client.
      In no way does it a benefit a broker to choose a high interest product for a client who is able to qualify for lower interest product.

      As a former bank employee, I know first hand that banks do not have their clients best interest in mind. They will offer their client the highest mortgage rate during the pre-qualification process. In reality, their rates are much lower. The only time they will give you a "deal", is when they find out you have a better offer through a mortgage broker or competing bank. I don't think that is the definition of customer care and customer loyalty.

      At then end of the day, wheather you are a "mortgage broker" or a "road rep", it is our goal to help our clients to the best of our ability. It is our goal to provide the public with unbiased facts and advice.

      This article brings great issues to the surface. It is will allow the public to conduct research and rise to their own conclusion. It also gives us a chance to share our opinions and shed light onto false statements.

      Tanner Coles
      Mortgage Expert

      8 14Rating: -6

      Craig Jeffery

      Oct 8, 2010 at 6:25pm

      Ask a broker for a secured line of credit and watch these so called 90 different lender sources whittle itself down to one or two, or maybe more commonly, none

      12 9Rating: +3

      Shawn Selanders

      Oct 13, 2010 at 3:33pm

      Obviously Craig Jeffrey is not a broker either and is sadly misinformed.
      Pick up the phone and educate yourself.

      Shawn Selanders
      Broker

      snow

      Nov 9, 2010 at 11:24pm

      Great suggestions and examples, especially for a newbie like myself who lacks a natural sense of web design.

      9 9Rating: 0

      johnthomas

      Dec 18, 2010 at 12:48am

      There are some comments directed to the above article which are completely false and need to be addressed.
      First, "mortgage brokers" are not paid based on the interest of the mortgage. We are paid a finders fee by the lender, on the mortgage amount. Again, we are paid on the mortgage amount, not the interest rate. This ensures that brokers are completely unbiased. We also have the ability to shop from over 90 different lenders that enable us to find the mortgage product best suited for our client.
      In no way does it a benefit a broker to choose a high interest product for a client who is able to qualify for lower interest product.
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      9 5Rating: +4