The Real Estate Council of Alberta (RECA) recently recently commissioned Weaver Marketing Research (WMR) to conduct a focus group study in Calgary and Edmonton in June 2009 to learn more about how the mortgage brokerage industry is perceived by consumers, what consumer perceptions and expectations are before and after using a broker, and to what degree mortgage brokerages are complying with the RECA disclosure requirements contained in the Mortgage Broker Disclosure Document.
One focus group in each city was for participants who have used the services of a mortgage broker in the past 12 months, and the second focus group in each city was for participants who intend to use a mortgage broker in the next 12 months. Overall, the results of the research are positive news for Alberta’s mortgage brokerage industry.
For obvious reasons, the responses were different between the two groups as a direct result of one group having already used the services of a mortgage broker. Overall, the individuals who had used a mortgage broker had a positive experience. The group that had not yet used a mortgage broker was more reserved and not as informed as the other group, however they anticipated a positive experience.
In the summary of WMR’s report it states:
“consumer understanding of compensation and relationships in the mortgage brokerage industry varies considerably, depending on the prior real estate experience of the individual and also on their personal level of interest in being informed. Nevertheless, it appears that a majority of consumers go in to the transaction with a reasonably accurate but very high-level sense of what a broker will do for them. It further appears that some more detailed information about industry relationships and compensation is being disseminated to most consumers much of the time; however the format and comprehensiveness of the information is highly inconsistent.”
As each of the focus groups progressed and more information was provided to participants, such as the Mortgage Broker Disclosure Document, participants’ understanding increased and there was a general acceptance of a number of concepts.
The WMR report further states:
“After lengthy group discussion and review of the Mortgage Broker Disclosure document, new learnings evolved that demonstrated the close relationship of the broker to the lender. By the end of the groups therefore, these participants tended to shift more toward the idea that a mortgage broker acted as an intermediary between borrower and lender, all the while maintaining a responsibility to serve the interests of their client. The potential “conflict of interest” presented by this arrangement did not seem to trouble most respondents. They continued to believe they were receiving elevated customer service and obtaining better mortgage rates and terms than they would obtain independently.”
Focus group participants who have previously used the services of a mortgage broker indicated that they had a pre-existing sense of trust with a mortgage broker because in most cases another person of trust had referred them to the broker. While some participants initially focused on the best mortgage rates that the broker could arrange, it became apparent that it was not so much the rate as the overall terms and conditions of the mortgage that is of key importance.
Other findings of the focus groups indicate that:
Most consumers have never paid much attention to the type of relationship they have with their broker, even if their broker had disclosed the type of relationships available
Most consumers enter into a relationship with a mortgage broker with a reasonably accurate sense of what a broker will do for them
Consumers perceive a strong broker-borrower relationship despite the broker having a lender-broker relationship. Consumers perceive that their broker always works on their behalf
Consumers have little concern for how a broker gets paid as long as it is not by them. Most consumers are aware that the lender pays commission; however, there is some concern among consumers about fees being charged to the consumer. There was increased attention paid to potential trailer fees as part of the brokerage’s compensation once they were aware that they may exist;
After reviewing RECA disclosure document for mortgage brokers, consumers became increasingly curious about the potential relationship options
Consumers are largely unaware of industry safeguards and what governing bodies might exist, however they assume some must exist
Consumers seemed willing to learn about the types of relationships their broker might have with them and potential lenders if the information was provided in an accessible manner
Most brokers are complying with relationship disclosure requirements, but only to the extent that their clients seem interested and willing to absorb that information
Consumers desire a standardized form for distributing relationship information, made available to everyone prior to speaking with brokers so they can “shop around”
Differing levels of understanding in the industry means dissemination of such standardized information should be layered, first in very simple terms then in more complex terms for more savvy consumers
The findings of the focus groups confirm that consumers have a positive view of the mortgage brokerage industry, that they perceive the broker as working in their best interest at all times, and that they have little concern for broker-lender relationships, types of compensation or regulatory safeguards. However, upon learning more about how brokerages work and the types of relationships brokers might have with clients and with lenders, focus group members became more interested in the information brokers are supposed to provide about potential relationships and compensation.
The final summary of the report comments:
“Group discussions provided some insights in to what consumers are looking for and are willing or interested to receive. It suggests that consumers who currently do not find industry disclosure information to be of value or relevance can be convinced to shift this view, with a bit of information pointing out what they now don’t know. It points to the value of better publicity and communication about the existence and function of RECA and the disclosure regulations, and suggests a mandatory, standardized multi-level approach for satisfying information needs of a broad spectrum of home-buyers.”
