Government of Canada Just Pointed Out Mortgage Market Might Be a Cesspool

The Big Six Banks’ out-of-control “Mobile Mortgage Specialists” on commission.

By Stephen Punwasi, Better Dwelling:

Bank executives are all of a sudden very vocal about foreign buyers. Strange timing, since a branch of the Government of Canada quietly dropped a report expressing concerns regarding the Big Six last week. The Financial Consumer Agency of Canada (FCAC), the division in charge of protecting consumers from predatory conduct, released a 26 page report on domestic bank practices. The organization found that retail banking culture encourages employees to sell products, with little regard for the consumer. Even worse, they found that banks don’t have adequate measures in place to “monitor, identify and mitigate these risks.” It’s kind of a big deal, especially when you dig through the mortgage sections.


First off, the FCAC is not addressing any alleged breaches of market conduct. If there were any, they have to be proven by a separate “track” of the FCAC, and they’ll enforce if required. The findings in the report represent observations, that provide an opportunity to present a problem. The FCAC wants to ensure you don’t think any specific banks are guilty of anything, although they never mention any banks by name… so you couldn’t identify them if you wanted to. You know, they’re just laying down a standard innocent until proven guilty intro. The kind you would hear before any Dick Wolf legal drama. Dun Dun.

Market Controls Are Insufficient At The Big Six

The report concludes that the Big Six banks are focusing on selling products, and incentivising employees to do so. The result is bank branches are now “stores,” dedicated to prioritizing sales over consumer interests. A sophisticated system has developed to reward employees for these sales, both financially and non-financially, potentially at the expense of the consumer. FCAC is also worried that the banking controls haven’t kept up with the change in the retail banking model, making them “insufficient” and prone to “mis-selling.”

For those that need a bureaucrat-to-English translation, they’re basically saying incentive to sell was greater than protecting consumers. While this is mildly annoying when it’s a credit card, or over priced chequing account, it has the potential to do some serious damage when it happens in what the FCAC calls “higher risk sales channels, practices and products.” Things like mortgages fall into this category, and make up a good chunk of the report. In particular, mobile mortgage specialists.

Mobile Mortgage Specialists and Variable Pay Models

Have you noticed an explosion in commercials, where the bank offers to send a mortgage specialist to pretty much anywhere you want to meet? These are called Mobile Mortgage Specialists (MMS), and according to FCAC, some banks “sell upwards of 90 percent of their mortgages through this channel.” Regulators found that all of the Big Six offer this service, and all use a 100-percent variable pay model.

A 100-percent variable pay model means the mortgage specialist only makes an income, if you borrow from them. For example, if the commission offered was 85 basis points, closing a million dollar mortgage lands a commission of $8,500. Some banks also up the commission if you sell past your target. You make no money if you don’t close a mortgage. You make mad cash for closing the largest mortgages you can, as quickly as possible. What could go wrong?

A lot. FCAC believes the current mobile mortgage model discourages these specialists from making “reasonable efforts” to assess consumer needs and financial goals. Selling products with higher commissions, larger mortgages than needed, or pushing to buy sooner “rather than encouraging a larger down payment” are all problems noted with the model. Specialists are motivated and incentivized to sell mortgages that yield higher commissions. You’re probably thinking, good thing banks have supervisors, right?

It’s Difficult To Enforce Appropriate Conduct

Turns out when mortgage specialists are meeting you at Starbucks or the Brass Rail, it’s difficult to supervise their conduct. According to the FCAC, “they [MMS] are expected to spend their time in the community developing business relationships with real estate agents, developers and others from whom they can earn mortgage referrals. This limits opportunities for direct supervision, observation of sales practices and coaching by managers.”

Let’s gloss over the fact that banks expect mortgage specialists to chill with other people who are also incentivised by maximizing consumer debt loads. Instead, let’s focus on the little opportunity for supervisors to monitor practices. The only way they would know anything was wrong is by consumer complaints, and default rates. Few people complain when they’re making money, so both are scarce while prices are rising. Default rates are always low during an up cycle as well, even when the buyer can no longer afford the home. These types of specialists haven’t been around long enough to witness a market down cycle.

Investigating poor conduct is also tricky, since these specialists are in high demand between the Big Six. FCAC notes, “The competitive market for the services of high-performing MMS can make it more difficult for banks to enforce codes of conduct and take disciplinary action.”

Did that just sound like they pick up and leave when a bank looks into them? Maybe we just misunderstood that statement, let’s dive deeper. According to the FCAC, “during the review, FCAC learned there have been cases of MMS leaving their employer before the bank could complete its investigation or take disciplinary action.” I guess we understood fine. Sounds like there have been investigations that end, just because the employee goes to work on the other side of Bay Street.

Canadian banks might be ticking all of the boxes, and vetting clients and offering the perfect product at the right time. They might be ensuring that consumer needs, and best interests are adequately taken care of. Or they might not. As the FCAC has pointed out, the current model, has inadequate measures to even monitor the issue. Claiming that all of these deals are adequately vetted is a guess at best.

Sorry to interrupt the narrative being crafted by bank executives right now. Let’s go back to them, and hear what they were saying. The correction is over, and foreign buyers are the biggest problem? We’re not talking about mobile mortgage specialists? Cool story, bros. By Stephen Punwasi, Better Dwelling.

In Toronto, the average price of detached houses plunged by C$207,000 in 12 months as sales collapsed. Read…  Toronto’s Epic Housing Bubble Turns to Bust

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  16 comments for “Government of Canada Just Pointed Out Mortgage Market Might Be a Cesspool

  1. bev kennedy says:

    Contact Judy Duncan of acorn as well re issues the income tranche Acorn services for further as well. Middle class need to understand they are not immune from systemic issues

  2. bev kennedy says:

    The fcac has also ignored the huge footprint the banks have in the investment industry. The save early save often appeals to consumers aka investors
    And considers it’s task done by shoehorning these oversight items to iiroc. Who does not see making retail investors whole as a part of its investor protection mandate
    And the fcac also passes the buck down to the provinces eg csa entities like the Ontario Securities Commission who shoehorn duties over to obsi and iiroc etc without adequate follow up and knowing from its reports from the Investor advisory Panel that there are serious persistent defect in how these funded by industry entities handle complaints
    Well there is a load off the government wallet on behalf of taxpayers. But at consider cost to the well being legally and financially of taxpayers who also are retail investors consumers. The fcac has many holes in its own socks clearly

  3. Anon1970 says:

    It seems that the Canadian banks are no better than Wells Fargo when it comes to not protecting the interests of consumers.

  4. Rates says:

    I once met a Canadian during my travel who’s so smug about how invulnerable the Canadian housing market were.

    The question is when. Given Warren B’s involvement though, I suspect Canada will get a bailout.

    • Nicko2 says:

      They will most definitely get a bail out/or bail in, when/if required. They’re literally too big to fail. Canuck smugness in tact.

    • WT Frogg says:

      Rates: I’ll lay you odds that Canadian you met was not old enough to remember the major reset that hit the Canadian housing market in 1989 + when mortgage interest rates doubled to around 21 %.

      • Alistair McLaughlin says:

        Or maybe he was old enough to remember, but drinks the Kool-Aid anyway. You’d be surprised how many people either forget, or just shrug off relatively recent history with “it’s different now”.

      • Rates says:

        I met the guy in 2011 in Japan. He had his teenager son with him. He was around 50.

      • David J says:

        My memory is better than yours….it was the end of 1979. In May of 1980 I had a mtg of 16% and every month I was further in debt as the interest was larger than my large monthly payment. A friend of mine had to renew his mtg. at 21% a few months later. I have never forgotten how bad it was and have no doubt nasty financial stuff will happen again. I am angry at all levels of government who are spending borrowed money like drunken sailors and racking up massive debt…….because I know who will end up paying the nasty price when the credit crunch returns!

        • Prairies says:

          Your memory is correct, I think MT might have had a typo. 1979 was the spike to correct the cheap money of the 70s. My parents and my friends parents all were starting families at the time, they just never feel the need to talk about it and prefer to ignore the past.

          Elders are supposed to educate, ours prefer to sit silent.


      The Oracle of Omaha already bailed out CANADA’s largest Alt-Loans Lender last year. He is making north of 15% markup on the loan.

      And the BIG 6 banks knew that the default rate was well north of the proposed risk parameters of 6%.

      Further, the Chinese ‘Hot’ Money Laundering has abated due to regulation in CANADA, and enforcement in China.

      Sound money, and honest price discovery, are but pipe dreams to us now. Funneling everyone into subprime mortgages simply because one can get larger fees is wholly unethical, and systemically problematic in so far as that increases the default rate if the benchmark interest rate environment is poised to tighten in successive increments that are anticipated, as well as predictable from a market standpoint, and expectation.


    • SimplyPut7 says:

      Except bailouts are for banks, not private lenders or family’s making 100k who don’t understand why banks won’t help them buy a home for $1.6 million.

      Only Toronto and Vancouver and the areas surrounding them (2 hours drive from each city centre during rush hour) are delusional, it’s not all of Canada.

  5. OutLookingIn says:

    It’s the “risk” you don’t see that blind sides the financial sector.

    Equity loan backed and mortgage backed securities. LBO’s and MBS’.
    These are derivatives. Packets of debt that are pulled together into a so-called “security” investment, that are then snapped up by mainly pension funds desperate for yield.

    These types of debt are not “counted” among the CMHC mortgage statistics and skate by the FCAC when it comes to residential mortgage accounting. What could go wrong?

  6. Andrew says:

    Love the rhetorical questions and humour. Good writing.

  7. raxadian says:

    Honesty the number one mistake one can make when it comes to finances is thinking “This bad thing won’t happen to me.”

    Smart people can figure what new scams are comming their way by seeing it happen in other places first.

    Of course if I was one of those people I would be rich. Hinsight is 20-20 after all.

  8. Lots says:

    Had never heard of a mobile mortgage rep and enjoyed the entertaining read thanks Wolf.

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