9 April 2018

And while it could irritate you only slightly in case of credit cards or expensive accounts, the damage may be really large when it comes to higher risk product, e.g. mortgages. The report focuses on mobile mortgage specialists in particular.

As you’ve probably noticed, there are too many commercials these days with banks offering to send their Mobile Mortgage Specialists (MMS) to any place you want for a meeting. The report says some banks sell about 90% of their mortgages using this service. It turns out all of the Big Six provide it, and they use a 100% variable pay scheme.

This model means that a specialist receives money only in case you get a mortgage from them. They get no income if they didn’t close the deal. They receive a lot of money for closing the largest mortgage in the shortest terms possible.

In FCAC’s opinion, this scheme makes MMS ignore the reasonable attempts to assess the real needs and financial possibilities of their potential clients. There are numerous problems with this model: selling mortgages with higher commissions, larger loans than necessary, insisting on closing the deal as soon as possible instead of saving up for the right down payment. MMS are encouraged to sell mortgages with higher commissions. Of course, there should be supervisors controlling them.

However, it turns out that when specialists meet you at café or any other place outside the bank, it’s quite difficult to control their behavior. FCAC says that MMS need to spend much time making business relationships with real estate agents, developers and others who can refer clients to them. As a result, it reduces the opportunities for direct supervision of sales practices.

Another issue is investigating poor conduct, as such specialists are in high demand among the Big Six. According to FCAC, “the competitive market for high-performing MMS can make it almost impossible for banks to encourage supervision and disciplinary action.”

Yes, you got it right. Specialists can just leave the bank if it controls them too much. FCAC says there were cases of MMS leaving their bank before it even finished its investigation. So it really looks like the investigation ends only because the specialist switches banks.