I have had a in interesting case with a returning client who came to me recently for help with his mortgage. As a mortgage broker in Vancouver, it is necessary to be creative in making solutions work for my clients, which currently can often involve secondary or private lending solutions. This was a case where such creativity would be necessary.
When I arrange a mortgage for a client, I try to do the best possible arrangement for them. If I can arrange a prime financing deal for them, I do so. In cases where I arrange prime financing for a client, I am fairly compensated by the mortgage lender and I do not need to charge any fees to the client. However, in cases such as private and “B” lenders, the compensation for my efforts is either significantly reduced or $0. Clearly, being in business to earn a living, this would present an issue, and as such, I need to charge a fee in these situations in order to earn a living. In such cases, I try to charge a fee that fairly compensates me for the work that I have done and is reasonable for the amount of work and difficulty of the situation.
The power of advertising
In this case though, my client had gone to another company between the time I first worked with him and this time in order to get a private mortgage. The lender he went to is a “specialist” in private lending, and they advertise extensively on radio and television.
As part of the mortgage I was arranging with the client, it required me to arrange a first mortgage and also have a second mortgage behind them. My thought was that I was going to do both of these mortgages for the client. However, the client had other ideas.
His thought was to see if his current second mortgage lender could remain behind the first mortgage I was arranging. I asked him why he wanted to do this, and he said that he thought it would be easier. I asked him how much they would charge him, and I told him how much it would cost him to do it with me, and he had said “its about the same.” I left it alone at that point and did my work as he asked.
However, it was far from the same. When I received a copy of the disclosure that they provided him, it turned out that the fees were DOUBLE what I was going to arrange for him, and with a significantly higher interest rate. Their fees on an approximate $250,000 mortgage was going to be over $25,000!
I had mostly talked to the client over the phone, but I really had to have this conversation with him. The client is an elderly fellow, a nice guy. I really felt strongly that he was being taken advantage of, and that disturbed me.
To clarify, in the other lenders defense, it is their prerogative to charge the fees that they feel is worth it for them to charge, or to charge whatever they feel that they can get away with charging as long as it is legal. I just think it is greedy, and I have heard this particular lender doing this with other elderly borrowers. I do not know if it is their regular rate, or if they are charging higher amounts when they feel that they can.
Anyways, I felt like a hero coming to the rescue of my client. However, even understanding the cost of the next option, he still wanted to go with the extortionate option. Then he said to me about my option “I have never heard of these people” and then I understood. If you get a local TV personality and make advertising featuring that person, you can get away with charging double the industry rates to people and its just fine!
I don’t think that everyone is like this, but I would have thought that the other lender would make up for the high cost of advertising in volume of mortgages, but this lender makes it in volume and in high fees.
In other industries, product and branding may matter. If you buy tires for your car, you want tires that are quality, and you can pay the appropriate premium for the types of tires you are comfortable with. When you talk about mortgages, then the legal tender of one lender is the same legal tender as another, and the only intangibles are ensuring that the lender is not predatory in nature (attempting to force foreclosures as an example). I have been in the mortgage industry for over 10 years, so I can recommend lenders to a client with confidence that they are good people to deal with.
If you need money, I can promise you that I will do the best I can for you, even if my main advertising is just my modest website.