Over the past couple of years, there have been a lot of people struggling to keep their homes. Most of these people have had difficulty finding or keeping employment as many employers scaled back operations or actually ceased to exist. Unfortunately these desperate times call for desperate measures, and some of these people can fall prey to some predatory mortgage brokers and agents.
You’ve seen many of their ads claiming to provide the best and sometimes only solutions to people’s problems, and you may also hear them on the radio, promising the usual “Best rates best service,” best of everything blah blah blah! Some even advertise incorrectly and don’t disclaim that they are a mortgage broker and sell themselves as CFPs and FMAs selling mortgages.
Well if they don’t know the rules to advertising via the Real Estate Council of Alberta, do you think they know the rules about mortgages?
Recently a couple that has fallen behind on their mortgage payments called one of our agents in the office and admitted that their payments were behind and that they needed to refinance their home to pay off some of their debt so that they can catch up on everything else.
You see, he was a previous client of ours, however was too embarrassed to call us initially. The client had fallen behind on a couple of payments, but still had a very large amount of equity remaining in their home. The client finally mustered up the courage to call our agent (not realizing that we see this every day and DO NOT judge anyone) and disclosed the contract that he wrote with the previous mortgage broker.
These mortgage agents that advertise solely for this type of mortgage are very well versed and are great at “spinning” the contract into looking like something that is prettier than it really is. This particular deal, a second mortgage for only $34,000, had an interest rate of 29%, and to top it off had fees totaling just about $11,000! The Annual Percentage Rate (APR-means total cost of mortgage) of this deal was 69.21%! Any loan or mortgage over an APR of 60% is called predatory lending and is illegal in Canada!
Our agent found these clients a first mortgage of $280,000 (as his existing mortgage was up for renewal in a month anyway), to 70% of the value of their home for only 8.95% with fees of only $8,400, with a total APR of only 9.326%, saving them almost 60%!
Now do these rates still sound high?
Yes, of course they do, but you have to realize that these folks were facing foreclosure as payments were falling behind not only on their mortgage but also on their other debts, so the risk level for the lender was pretty high.
The best thing they did was call us early enough so that foreclosure was averted. Some people wait too long and end up losing their home and destroying their credit. This is especially harmful if a lot of equity was left on the table and this could have all been avoided.
What concerns me is that we still have “Guido” type mortgage brokers/agents out there defacing what us as ethical mortgage brokers have done to clean up the reputation of mortgage brokers of the 1980s.
It’s taken a long time, and we’ve completed all the right steps to clean up their reputation they left us, but then we find deals like the one illustrated here and they wonder why the old stigma of mortgage brokers still exists with the older generations.
Our industry created organizations like the Alberta Mortgage Brokers Association (AMBA) and also the Canadian Association of Accredited Mortgage Professionals (CAAMP) to help deal with the unethical behavior of mortgage agents and brokers still out there and to educate the newcomers about ethical mortgage practices.
If you are in a situation like the one depicted above, the best advice I can give is to seek out a second opinion. You’d do it for your own health, why not do it for your financial health!
Jean-Guy Turcotte is an Accredited Mortgage Professional (AMP) with his partners at Regional Mortgage Corporation and can be reached at 403-343-1125 or texted to 403-391-2552 or via email to firstname.lastname@example.org.