STREET CAPITAL FINANCIAL CORPORATION STREET CAPITAL HOLDINGS CORPORATION STREET CAPITAL MORTGAGE CORPORATION

Transcription

1 STREET CAPITAL FINANCIAL CORPORATION STREET CAPITAL HOLDINGS CORPORATION STREET CAPITAL MORTGAGE CORPORATION (Collectively referred to as Street Capital) CONFLICT OF INTEREST AND MORTGAGE SUITABILITY POLICY FOR MORTGAGE LENDERS, MORTGAGE BROKERAGES, BROKERS, AGENTS AND ADMINISTRATORS AND THEIR RESPECTIVE EMPLOYEES IN DEALING WITH STREET CAPITAL January 2010

2 STREET CAPITAL CONFLICT OF INTEREST AND MORTGAGE SUITABILITY POLICY FOR MORTGAGE LENDERS, MORTGAGE BROKERAGES, BROKERS, AGENTS AND ADMINISTRATORS Context Street Capital requires that all of the mortgage lenders, mortgage brokerages, mortgage brokers, agents and administrators with which it does business (Business Associates) observe the highest standards of conduct and ethics. In all aspects of the undertaking of business with Street Capital, compliance with the disclosure, conflicts of interest, and mortgage suitability guidelines from the appropriate regulatory body is expected. The purpose of this policy is to provide guidance to the Business Associates dealing with Street Capital, regarding Street Capital's expectations regarding these policies. Conflict of Interest A conflict of interest will arise whenever a Business Associate that Street Capital deals through, has, or would reasonably be perceived to have an incentive to put its interests ahead of the interests of a borrower, or where applicable, a lender or investor. If a conflict of interest is determined to have occurred, proper disclosure of said conflict should be made by the relevant Business Associate. The disclosure must also meet the disclosure requirements of the relevant mortgage brokers' legislation and any regulations in connection therewith. Each Business Associate should have its own Conflict of Interest Policy and should take reasonable steps to monitor compliance with such policy. Examples of Potential Conflicts The following are examples which should be carefully considered as potentially leading to conflict of interest: 1. The mortgage brokerage/broker/agent is related to the appraiser. 2. The lender is related to the mortgage broker/agent. 3. The lender is a family member of the borrower. 4. When the mortgage brokerage/broker/agent is also a lender. 5. If the mortgage broker or his/her spouse uses a self-directed RRSP to fund the mortgage for the borrower. 6. Receiving travel points, free holidays, or other incentives that are normally not available. 7. Favouring a lender due to monetary reasons. 8. When a mortgage broker/agent acts for both the borrower and lender. 9. If the mortgage broker/agent receives higher bonus commissions for working with a specific lender during a specific timeframe. 10. If the principal broker is also a real estate broker who is involved with listing and selling a property. 11. Placing business where a higher commission or gift is granted. 12. If a large portion of your business (over 50 per cent) is done exclusively with one party. 13. Sending a client to a lender because you received a free trip. 14. Accepting remuneration from both the borrower and lender without disclosure. 15. Recommending a mortgage with a higher interest rate due to a higher finder s fee. 16. Not disclosing the different rates and terms offered by banks and how you will be compensated. 17. Failure to disclose to the borrower that you received a fee from another party (lender or investor).

3 - 3 - Specific Duties If a Business Associate is faced with a potential conflict of interest, and either of these two questions is answered positively, disclosure should be made by it: 1. Would the mortgage product offered be different if a potential conflict of interest did not exist? 2. Would it appear to a reasonable informed third party that Street Capital, or the relevant Business Associate has an incentive to not act in the best interest of the borrower, or where applicable, the lender or investor. The Business Associate who is subject to the conflict of interest should take the following steps for disclosure of a conflict of interest. Step1 - Determine whether a perceived or actual conflict of interest situation exists. Step 2 - If so, disclose in writing the actual or perceived conflict of interest. It should be written in a plain, brief and clear manner. If in doubt, make the disclosure. Step 3 - Be willing to explain the actual or potential conflict of interest to the borrower, lender or investor. Step 4 - Have the borrower, lender or investor acknowledge in writing the receipt of this disclosure. Step 5 - Provide a copy of the acknowledgement to the borrower, lender or investor, and retain a copy of the written disclosure, acknowledgement and any related material for the Business Associate's files. Step 6 - Provide a copy of the disclosure, the acknowledgement and any related material to Street Capital, Attention CEO, at the address found on Street Capital s website ( Any relationship or arrangement which is governed by specific regulation that constitutes a potential conflict of interest must be considered and disclosure made; examples are: (a) disclosure of a brokerage's rules; (b) disclosure of relationships with lenders; (c) fees payable by others Example of Regulatory Requirements---Ontario As an example of disclosure requirements the Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice, at Sections 18, 19 and 21 which are set out below, demonstrate the required disclosures in Ontario, which are in addition to the disclosure of conflicts of interest as set out in this policy. Disclosure re role of brokerage 18(1) A brokerage shall disclose in writing to a prospective borrower or lender the following information about the nature of its relationship with borrowers and lenders: 1. Information about whether, and when, the brokerage is acting as a representative of the lender but not the borrower in a transaction. 2. Information about whether, and when, the brokerage is acting as a representative of the borrower but not the lender in a transaction.

4 Information about whether, and when, the brokerage is acting as a representative of both the borrower and the lender in a transaction and is not giving preference to the interests of either. O. Reg. 188/08, s.18 (1). (2) Subsection (1) does not apply when the brokerage is the mortgage lender. O. Reg. 188/08, s. 18 (2). Disclosure of brokerage s relationship with lenders 19(1) A brokerage shall disclose in writing to a borrower the number of lenders on whose behalf the brokerage acted as a representative during the previous fiscal year and shall indicate whether the brokerage itself was a lender. O. Reg. 188/08, s. 19 (1). (2) When there are two or more lenders under one mortgage, they are deemed to be one lender for the purposes of subsection (1). O. Reg. 188/08, s. 19 (2). (3) Upon request, a brokerage shall disclose the following information in writing to a borrower: 1. Whether the brokerage itself was the lender for more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during the previous fiscal year. 2. the name of the lender, if any, with whom the brokerage arranged mortgages during the previous fiscal year if the mortgages constituted more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during the previous fiscal year. O. Reg. 188/08, s. 19 (3). Fees, etc., payable by others 21(1) A brokerage shall give the following information, in writing, to a borrower in connection with a mortgage or renewal that it presents for the borrower s consideration: 1. Whether the brokerage has received, may receive or will receive a fee or other remuneration, directly or indirectly, from another person or entity in connection with the negotiation or arrangement of the mortgage or renewal. 2. If a fee or other remuneration is or may be payable to the brokerage, the identity of the other person or entity, the basis for calculating the amount of the fee or other remuneration and, in case of a benefit other than money, the nature of the benefit. 3. Whether a broker or agent who is authorized to deal or trade in mortgages on the brokerage s behalf has received, may receive or will receive payment of an incentive from another person or entity in connection with the negotiation or arrangement of the mortgage or renewal. 4. If an incentive is or may be payable to a broker or agent, the nature of the incentive and the identity of the other person or entity. O. Reg. 188/08, s. 21 (1). (2) The brokerage shall obtain the borrower s written acknowledgement that the brokerage made the disclosure required by this section. O. Reg. 188/08, s. 21 (2). Disclosure The disclosure statement, given when required, as a consequence of a conflict of interest, must meet the disclosure requirements of the relevant mortgage brokers' legislation and any regulations in connection therewith. A Business Associate must ensure that any submortgage brokers or agents are providing the disclosure to the same standards required hereunder and shall be responsible for providing disclosure of conflicts of interest to which any of its employees is subject and completion, delivery and retention of documents required hereunder. Where a borrower does not receive the lowest interest rate offered by a lender to that borrower, specific disclosure must be considered by the relevant Business Associate. Disclosure that the rate offered is not the lowest rate available for that borrower specifically must be made where the brokerage or broker has

5 - 5 - received or expects to receive greater remuneration, of any kind, from Street Capital than is available from another committed lender. All disclosure forms, including conflict of interest disclosure forms, must be completed, delivered, and retained in the file by the relevant Business Associate. Consultation Any Business Associate dealing with Street Capital should consult the senior management of Street Capital in the event that it becomes subject to any conflict of interest to ensure it has appropriately completed the disclosure requirements. Duties and Responsibilities Every Business Associate dealing with Street Capital should take reasonable steps to identify whether it has a potential conflict of interest in any transaction undertaken. It is the policy of Street Capital to comply fully with all applicable law. This includes all law applicable to the identification, disclosure, recording and retention of records and as to disclosure of potential conflicts of interest. Mortgage Suitability Every Business Associate dealing with Street Capital should also take reasonable steps to ensure that; the proposed mortgage or investment in a mortgage is suitable with regard to the client s needs and circumstances, and; it will not create undue risk for the borrower, lender or investor. It is important that to know your client by asking the right questions to ensure that the borrower, lender, or investor is not exposed to undue risk and that it fits their risk tolerance. Reasonable steps to achieve this outcome would be: 1. Disclosing your role to the prospective borrower or lender 2. Asking the right questions to determine the client s needs and circumstances 3. Thinking about what makes a mortgage suitable for that particular client 4. Documenting your activities In addition to knowing the features of the products which are available for your customer, you should also consider the following factors when considering the suitability of a mortgage for a borrower, lender or investor: 1. The amount the borrower can afford for monthly mortgage payments. 2. If the customer can get out of the mortgage. 3. The ability to repay equity, depending on the property s condition and location. 4. Length of the mortgage term, costs, and charges at time of renewal. 5. Risk tolerance of the borrower. 6. Does the client s risk tolerance match a mortgage that does not have fixed payments? 7. Equity in the property. 8. The borrower's long-term and short-term goals. 9. Can the client service the debt? 10. Can the borrower make mortgage payments with his/her income? 11. Current mortgage rates and discounts that may not be in effect in the long-term. 12. Open and semi-open features of the mortgage, if the borrower will have more money in the future.

6 The borrower s employment status and future plans. 14. Life circumstances. 15. Amount of the down payment, amount of equity in the property, and location of the property. 16. Job stability, loan to value exposure, whether the individual is a first time buyer or a seasoned borrower. 17. Type of industry the individual works in, the individual s lifestyle and cash flow. 18. The borrower s income, age and stage in life. 19. Risk tolerance and the rate of return needed by the investor/lender. 20. An investor needs a steady monthly cash flow in order to participate in a mortgage investment. 21. The investor s net worth, experience in investing, income, goals and objectives. 22. The property type and location. 23. The purpose of the loan. If you have doubts about your expertise to assess the suitability of a mortgage you can network through your brokerage, your co-broker or make a referral to properly assess the suitability.