‘In­censed’ cou­ple fights mort­gage bro­ker fee

Heated dis­pute over $10K bill ex­poses grow­ing prac­tice in highly com­pet­i­tive in­dus­try

Toronto Star - - BUSINESS - DANA FLAVELLE BUSI­NESS RE­PORTER

A Toronto cou­ple say they were shocked to learn their mort­gage bro­ker ex­pected them to pay nearly $10,000 in fees af­ter they de­cided against pro­ceed­ing with the loan they were of­fered.

Gael Mourant and Caro­line Hub­ber­stey said Mon­ster Mort­gage tried to col­lect the fees af­ter they de­cided to stick with their ex­ist­ing mort­gage holder in or­der to avoid pay­ing huge early ter­mi­na­tion penal­ties.

“They ad­ver­tise their ser­vice is free to the bor­rower. That the fees are paid by the len­der upon clos­ing,” said Mourant. “We were shocked.”

Mon­ster Mort­gage de­fended the can­cel­la­tion fee, say­ing it is dis­closed both ver­bally and in writ­ing to the client dur­ing the mort­gage process.

“Our record speaks for it­self. We’ve been around for a long time. We’re not here to hurt any­body,” said Mon­ster Mort­gage pres­i­dent Vince Gae­tano.

The dis­pute sheds new light on a lit­tle known but grow­ing prac­tice in the highly com­pet­i­tive mort­gage in­dus­try: Some bro­kers charge fees partly to dis­cour­age clients from play­ing lenders off against each other.

In­deed, Mon­ster Mort­gage has pur­sued at least 30 other cases through small claims court in Toronto over the past three years in a bid to col­lect fees rang­ing from $1,000 to $18,200, a search of court records show.

Mourant and Hub­ber­stey said they had not pre­vi­ously used a mort­gage bro­ker. But like a grow­ing num­ber of Cana­di­ans, they de­cided to see what a bro­ker could do for them.

In an in­creas­ingly com­plex mort­gage mar­ket, where banks’ posted rates are ne­go­tiable, more bor­row­ers are turn­ing to bro­kers for help nav­i­gat­ing the process.

Like most mort­gage bro­kers, Mon­ster Mort­gage pro­motes the fact its ser­vice is free to the bor­rower. Its costs are paid by the len­der. When a loan is ar­ranged the bro­ker re­ceives a fee from the len­der. But when Mourant and Hub­ber­stey de­cided not to pro­ceed with the loan, they said, Mon­ster Mort­gage ex­pected them to pick up the tab.

“I was in­censed,” said Mourant, adding she be­lieves small claims court is be­ing used in­ap­pro­pri­ately to col­lect on Mon­ster’s be­half.

Mourant, an ex­pe­ri­enced cor­po­rate ex­ec­u­tive, said noth­ing in her deal­ings with Mon­ster pre­pared her for this and that the word­ing in the dis­clo­sure doc­u­ment she signed does not sup­port its po­si­tion that she’s re­spon­si­ble for any costs.

Gae­tano de­fended the can­cel­la­tion fee say­ing it cov­ers the cost of ar­rang­ing a mort­gage that is then de­clined.

“We’ve been do­ing it for at least15 to 20 years. It’s al­ways been our prac­tice. Our clients are fully ex­plained, what their obli­ga­tion is. If you’re not happy with the ser­vice, don’t sign any­thing,” said Gae­tano.

The fee is charged in a “very small per­cent­age of cases,” he said. Gae­tano noted it is not charged when a deal falls through for rea­sons be­yond the bor­rower’s con­trol — for ex­am­ple, if the home fails the in­spec­tion or the ap­praisal comes in too low.

Mourant has hired a Bay Street law firm to press her case and has also com­plained to the Fi­nan­cial Ser­vices Com­mis­sion of On­tario (FSCO), and the fed­eral Com­pe­ti­tion Bureau, on the grounds of de­cep­tive mar­ket­ing. She has also com­plained to the Bank of Nova Sco­tia, the len­der Mon­ster Mort­gage had ar­ranged the mort­gage with.

“This isn’t about me. It’s about a whole bunch of peo­ple who are be­ing vic­tim­ized,” said Mourant.

FSCO, which reg­u­lates the in­dus­try in the province, said mort­gage bro­kers are not pro­hib­ited from charg­ing can­cel­la­tion fees. They are re­quired to pro­vide full dis­clo­sure to en­able bor­row­ers to make in­formed de­ci­sions. The com­mis­sion said it doesn’t com­ment on spe­cific cases. The Com­pe­ti­tion Bureau also de­clined to com­ment, cit­ing con­fi­den­tial­ity is­sues.

The Bank of Nova Sco­tia con­firmed it had re­ceived Mourant’s com­plaint. “Af­ter re­view­ing the mat­ter, the agree­ment was made with the third party mort­gage bro­ker and Ms. Mourant. Our un­der­stand­ing is that this mat­ter is also in the courts be­tween the third party bro­ker and Ms. Mourant and there­fore can’t com­ment fur­ther,” the bank said in a state­ment.

“Can­cel­la­tion fees are be­com­ing a trend,” said Robert McLis­ter, editor of Cana­di­anMort­gageTrends.com and founder of in­tel­liMort­gage Inc. and RateSpy.com.

The fees can range from a flat $300 to as much as1per cent of the value of the mort­gage, said McLis­ter.

In part, it re­flects how com­pet­i­tive and ra­zor-thin profit mar­gins have be­come on mort­gages. In or­der to of­fer the low­est rates, lenders ex­pect mort­gage bro­kers to close 75 to 90 per cent of their deals, McLis­ter said.

Not all banks use in­de­pen­dent mort­gage bro­kers. Royal Bank, CIBC and Bank of Mon­treal have all taken their lend­ing busi­ness in-house.

True North Mort­gage, one of Canada’s largest in­de­pen­dent mort­gage bro­kers, said it charges what it calls a com­mit­ment fee in cases where a client declines the loan af­ter shop­ping around for the best rate. The fee amounts to 1 per cent of the value of the mort­gage.

“When we sub­mit a deal, there’s a cost to the len­der to un­der­write it and they hold it against us if the deal doesn’t close,” said True North chief ex­ec­u­tive of­fi­cer Dan Eis­ner. “They pay us less, give us worse rates go­ing for­ward.”

Mourant said they de­clined the of­fer from Mon­ster Mort­gages af­ter they learned their bank would charge them a $43,000 penalty for break­ing their mort­gage early.

“The bank wouldn’t budge on it,” said Mourant.

NICK KOZAK FOR THE TORONTO STAR

Caro­line Hub­ber­stey, left, and Gael Mourant, were sur­prised when Mon­ster Mort­gage charged them a $10,000 can­cel­la­tion fee.

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