COLUMN: Ask the Money Lady – Explaining B lenders

Dear Money Lady: I went to my RBC Bank to get approved for a mortgage on our new home purchase but was really surprised when they ended up giving me a mortgage from a completely different mortgage company. Is this some sort of scam? Jamie

I am sure it is fine Jamie. Perhaps you may not have qualified under the traditional banking model, so they outsourced it to a partner. This is a standard practice in the industry, so let’s review how this works.

There are three main levels of lending in Canada: A, B, and C lenders. The A lenders are the largest banks (like TD, RBC, BNS, BMO and CIBC) which have most of the market share across the country. They are the movers and shakers of the banking world and always tend to move in tandem when raising and lowering rates. Their stock is traded worldwide, and they are generally considered the foundational backbone of our financial system. Their lending practices are virtually the same across all channels and if you are declined by one of them, you most probably will be declined by them all.

The B lenders are the smaller banks and credit unions. They normally specialize in clients with unique lending requirements and provide products to clients who do not fit into a typical lending or credit criteria. These lenders are an alternative source for clients, and they usually partner with all the big banks for spinoff business.

You see, A lenders have become very creative in ensuring that they do not lose clients when they decline a deal. By partnering with B lenders, the big banks have found that they can now give the client an approval through their alternative lending channels or alternative mortgage services, (AMS). This approval is from the partnering B lender, but because of this alignment, the client will still get all the personal banking services and promotional offers from the big bank or A lender. The A lender receives a partnering fee from the smaller B lender and still retains the client relationship for the future. This is a win-win for all parties. Due to the large volume of referrals to the partnering B lenders, clients usually get a lower rate and a better offer than if they went to a B lender on their own or through an independent broker.

RBC will need to disclose their relationship with their AMS partner and will ask on their behalf to close your mortgage. You have nothing to worry about, this is done all the time with the Big 5 Banks. Congrats on your new home.

By the way, a C lender is usually an alternative lender for those clients who have particularly bad credit or very unique situations. C lenders will always be attained through a mortgage broker and the deal will typically have many fees associated with it to close – it may even be a private lender, investor group or law firm that underwrites the deal.

Christine Ibbotson is a Canadian finance writer, radio host & YouTuber. For more advice check out her YouTube channel: ASK THE MONEY LADY – Your Canadian Finance Coach.