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Suppose you’re a car salesperson and your boss offers you a $1,000
bonus if you can sell a Toyota Yaris for $50,000.
Would that get you excited?
Us neither. Who wants to stick a poor customer with an overpriced
product to make a few extra bucks? (If you answered, “I would,” don’t
bother reading further.)
Yet, it’s sometimes accepted practice for lenders to offer bonus
compensation to sell mortgages at above-market rates. No
offense to any of our lender partners, but this type of compensation
scheme doesn't exactly scream of fiduciary responsibility.
It’s even worse when rates should be dropping. Look at our current
market scenario for example.
On March 1:
- The 5-year bond yield was 2.52%
- A deeply-discounted 5-year fixed rate was ~3.69%.
As of yesterday:
- The 5-year bond yield was 2.52%
- A deeply-discounted 5-year fixed rate was ~4.29%
That’s a 60 basis point higher rate today, despite yields
dropping almost 70 basis points in the last month. There’s no question
that 5-year fixed rates should be lower than they are. Yet, most lenders
are keeping them inflated.
Instead of lowering their rates, some lenders are offering brokers
incentives to sell higher rates. This practice isn’t doing brokers any
favours, and it sure as heck isn’t helping customers.
Most, in our business, would rather see lenders avoid incentives not
aligned with the customer’s best interests. Lenders could then pass
along lower rates and help brokers be as competitive as possible in the
marketplace.
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