‘Incensed’ couple fights mortgage broker fee
Heated dispute over $10K bill exposes growing practice in highly competitive industry
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.