Mortgage Brokerage Relationship Options
It’s important that borrowers understand the relationship they have with their mortgage broker. Did you know that when you’re talking with a mortgage broker about applying for and getting a mortgage, that broker’s business model may be to represent the lender, not you?
A mortgage brokerage may:
- represent the borrower (you)
- represent the lender
- act as an intermediary
Each relationship option comes with different roles and obligations. In all cases, though, mortgage brokers have a responsibility to clearly explain their role to borrowers they’re working with.
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+ When they are representing you, the borrower
When a mortgage brokerage represents you, as a borrower, you are a CLIENT. They must act in your best interests at all times, and will owe you general, fiduciary, and regulatory obligations. These include undivided loyalty, confidentiality, full disclosure, obedience, reasonable care and skill, and full accounting. They will recommend financing options to you, advocate on your behalf, and provide you with confidential advice.
+ When they are representing the lender
When a mortgage brokerage is representing the lender, they will be acting in the lender’s best interests at all times, not yours. They can still work with you; however, they will treat you as a customer, not a client.
When you are the customer of a mortgage brokerage, that brokerage must:
- treat you honestly and act with reasonable care and skill
- gather information on the property you want to finance and on your financial situation
- explain the lender’s options to you
- complete the necessary documents and submit them to the lender
- tell you about the transaction’s progress and pass along any communications from the lender to you
The mortgage brokerage cannot give you advice or act in any way that would be a detriment to their client, which is the lender. The lender has their undivided loyalty.
+ When they are acting as an intermediary
A mortgage brokerage may act as an intermediary between you, as a borrower, and potential lenders. In this case, the mortgage brokerage is not representing you or the lender. Neither of you are clients. Both are customers.
The brokerage will facilitate the mortgage deal by gathering information, explaining the options, completing the necessary documents and keeping both sides apprised of the deal’s progress. They will not act to the benefit or detriment of you or the lender(s). Alberta mortgage brokerages often work as intermediaries when working with residential borrowers.
It is the mortgage brokerage’s decision
Each mortgage brokerage decides its own business model. Some only represent lenders, some only represent buyers, and some will represent either. The brokerage should explain its model, and inform you of your options, including sending you to another brokerage, if you are not satisfied with the options they offer.
Written Service Agreements
When you find a mortgage broker you’d like to work with, they will ask you to sign a written service agreement. Mortgage brokers are required to have written service agreements when working with clients; that requirement applies whether the broker represents the borrower, a lender, or acts as an intermediary between a borrower and lender.
Written service agreements enhance consumer protection by giving clarity about the roles and obligations between mortgage brokers and borrowers, and reduce any potential for conflicts and confusion.
Your written service agreement with your mortgage broker will tell you what you can and should expect from your working relationship with your mortgage broker. Your agreement will:
- describe the responsibilities and services of the mortgage broker
- outline the obligations of the mortgage broker and the borrower
- set out the fees (if any) or how the mortgage broker will receive their fee
- give consent to collect, maintain, use, and distribute a borrowers’ personal information
- address any potential conflict of interest scenarios
- give consent to “pull’ a credit bureau on the borrower(s)
- give an option for the borrower to receive electronic messages from the mortgage broker after the funding of the transaction
- Representing the Borrower Service Agreement (explanation sheet and service agreement)
- Acting as an Intermediary Service Agreement
- Borrower Consent and Disclosure When you Represent the Lender