The Commitment Is Not a Commitment

Can we remove subjects, or conditions?

Depending on which province you're in, we may not agree on which word to use in a purchase contract.

But we can agree that once they are removed, the contract to buy becomes binding.

What about the contract to lend?

The mortgage commitment?

There's no firm contract to lend, not ever.

And there certainly is not an unconditional commitment, there are conditions not inherently spelled out - AML, FINTRAC, IHIT, etc. There are things happening behind the scenes that a lender will not tell you or the client about, ever.
No, you will just get a decline... days before funding, months after the 'Broker Complete'.

So, let’s think about this.

Once those conditions are removed...

The contract to buy becomes firm.

The commitment to lend does not.

Your client is now locked into buying the home.

The lender is NOT locked into funding it.

This is a massive logic gap.

Not a single Bank, Credit Union, Trust Company, Mortgage Investment Corporation, or private lender guarantees that it will fund no matter what happens next.

They can refuse to fund if new information lands on their radar the day before, or even the day of, completion.

A job loss.

A new car loan.

A missed payment.

A change in credit.

A problem with the property.

A problem with the documents.

A problem with the down payment.

A problem nobody saw coming.

It could even be an inquiry tied to law enforcement.

Or an alert that triggers an AML review.

In those cases, the commitment may be cancelled and nobody will tell you or the client why.

The answer may simply be:

“We will not be funding this mortgage.”

That can happen right up to the day of closing.

Luckily, it rarely does.

But it does happen.

At every level.

With every type of lender.

So, when a client asks:

“Are we good to go firm?”

What is the answer?

It cannot be: “Yes. You are 100% clear to close.”

Because you cannot promise what you do not control.

You can tell them the file is approved.

You can tell them the lender has reviewed the documents.

You can tell them the known conditions have been met.

You can tell them you see no reason why it should not fund.

But you cannot guarantee that the money will arrive.

No Broker can.

Because no lender does.

Not a single Canadian lender stands behind that document with “Commitment” printed across the top and promises to fund no matter what happens next.

Why would they?

Lenders are in a razor-thin margin game.

They are in the risk-mitigation business.

An approval is based on what the lender knows today.

If something changes tomorrow, the approval can change too.

Does that make sense?

Not really.

The buyer can remove conditions and become fully bound to the purchase.

The buyer can then have one small and temporary change in their life.

The lender can refuse to fund.

That leaves the buyer carrying nearly all the closing-day risk.

Some of you may be shrugging and saying:

“So what? That is the chance a buyer takes.”

You are not thinking this through.

You are not seeing that you and your family are exposed to this gap too.

In life, things happen.

And the timing of those things can be everything.

Get laid off the day after funding?

No problem.

Assuming the mortgage payments continue to be made and there was no fraud, lie, or breach of the mortgage contract, the mortgage carries on.

A line of credit is different.

An LOC is a demand loan. The lender may be able to raise the rate (to Prime +10%) or demand payment in full in 30 days.
You explained this to every HELOC client right?

But a closed mortgage term?

The lender cannot normally cancel it the day after funding just because the borrower lost a job, leased a car, or had their credit score fall a few points.

So, up until the day of funding, there is a huge risk.

Why?

Why is that the magic date?

Why is the day the buyer goes firm not the day the financing goes firm too?

In many cases, we're talking about a gap of only a few weeks.

We're also talking about a tiny percentage of clients.

But when you have one of those clients, and one day you will, you will wonder how the system is allowed to work this way.

Imagine a lender pulling credit the day before funding.

Then cancelling the mortgage because the client’s score dropped three points, putting it one point below a magic number carved in stone by an investor.

Yes, that is a true story.

No, I will not name the lender with that policy.

Or the lender that calls the employer a second time, the day before close, to reconfirm employment.

Really?

Yes. Really.

The bottom line:

Removing conditions makes the purchase firm.

It does not guarantee the mortgage will fund.

There are dozens of ways a file can blow up the day before closing.

Your job is to head them all off ahead of time.

The commitment is not a commitment.

Sleep well.

DW