How does a mortgage broker make money in Canada?
How does a mortgage broker make money? -Canada
I assume they get some sort of referral fee from the lending
institution/bank. Is it a flat fee, or is it a variable percentage
based on the amount of the loan? Or both? How much? I am interested
in Canada, but I'm assuming the US is similar, so please feel free to
respond. Also, are the 'referral fees' static across Canada, or do
they differ by Province and/or city?
There are multiple ways to get paid for originating a loan. They are as
follows:
Origination Fee, generally a percentage "point", typically 1 to 5% of the
loan amount. It can also be a flat fee.
Discount Fee, again, a point. this fee is intended for buying a rate, but is
actually paid to brokers sometimes when they're trying to hide fees. Again,
this can be a dollar figure, ratehr than a percentage.
Broker Fee, this can be a point or a dollar figure. This varies from broker
to broker, and should not be used at the same time as an origination fee.
Brokers can sometimes be seen to put "junk fees" in the guise of
underwriting, processing, admin, committment fees, and others. The gov't
loans prohibit putting these junk fees on the HUD.
Some brokers also charge application fees, and a few others.
The above fees are allowable to certain limits on the HUD, as paid by the
borrower, except as noted on gov't laons.
THere is also a way to get paid from the funding lender, by "upselling" the
rate. If a par rate is 6%, and you get the borrower to agree to 6.5%, the
lender will compensate you for the higher rate by paying you a Yield Spread
Premium, or int he case of correspondent lending, a Service Release Premium.
These fees are paid directly to the broker, and in some cases (brokers) are
shown on the HUD, and some (correspondent) not shown on the HUD.
The Federal laws concerning brokers limit the "front" ( non-YSP/SRP)
compensation to 7.99% of the loan amount, while the "back" YSP/SRP is
typically limited by a formula derived from the rate the bank is getting the
money for (or something close to that).
The Loan Officers get a percentage of the total fees, that is Orig, Disc,
Borker and YSP/SRP. The commission varies from around 35% to 75% or more,
depending on the broker, the experience level of the LO and the source of
the lead. If you prospect and develop the lead yourself, you get higher %
than if the company telemarkets the lead, or buys it, or whatever.
It's not a bad occupation, although it can be tough to deal with if you
don't have a good referral base. Possible incomes are in the 6 figure range
with referral base, and $30-35K if not.
Figures noted, and regulations alluded to are typical of US based mortgage
lending. Your milage may vary in Canada, as I've not done business there.