Page 1 of 7 2950 Keele Street, Suite 103 Toronto, Ontario; M3M 2H2 V: 416.252.4622 F: 416.252.4623 www.imba.ca Five-Year Review THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT OF ONTARIO (MBLAA) 2006 Commentary by the INDEPENDENT MORTGAGE BROKERS ASSOCIATION OF ONTARIO September 16, 2013 For the consideration of: The Honourable Charles Sousa Minister of Finance Mr. Steven Del Duca Parliamentary Assistant to the Minister of Finance Mr. Philip Howell CEO and Superintendent, Financial Services Commission of Ontario
Page 2 of 7 1.0 INTRODUCTION The (IMBA) Board of Directors and members thank the Province of Ontario Ministry of Finance (MoF) for the opportunity to participate in the review process and for considering IMBA s recommendations on changes to the MBLAA. Open communication and collaboration with the MoF and the regulator, Financial Services Commission of Ontario (FSCO) is a clear benefit to the industry and to the public. Section 2.0 of this commentary provides background information on IMBA, its values and its role in the mortgage brokerage sector. Section 3.0 of this commentary outlines 8 specific areas of concern that our members feel should be addressed. They are organized in priority as follows: 3.1 Education Review MBLAA Sec. 14 and Reg. 409/07 Education Standards (Broker/Agent/CE for both) 3.2 Financial Institutions exemptions MBLAA 6.1 Section 2,3,4 3.3 Errors and Omissions insurance Ont. Regs. 188/08 3.4 Financial Services Tribunal MBLAA Section 6 3.5 Lawyers exemptions MBLAA Section 6.6 3.6 Simple referrals MBLAA 6.4 and Ont. Regs. 407/7 3.7 Exempt Mortgage Lenders Deposits Ont. Regs. 407/7 Sec. 15 3.8 Retaining Records for 6 Years after expiry of term or renewal - Ont. Regs. 188/08 Sec. 48 2.0 BACKGROUND Mortgage brokers in Ontario formed IMBA to represent and assist its members who are Mortgage brokers and agents of mortgage brokerages. IMBA s members, in their roles as financial intermediaries, are providers and facilitators of residential and commercial mortgage loans and mortgage loan investments to borrowers and investors. IMBA s members conduct their business throughout Ontario and come from all parts of the province. IMBA gives voice to and speaks on behalf of the province s approximately 12,000 mortgage brokers and agents, and for both their lender clients and their borrowing clients the consumer. We represent our members on legislative matters with the Ministry of Finance and on regulatory matters with FSCO.
Page 3 of 7 IMBA s core beliefs are consumer protection for both borrowers and investors/lenders and professional development for both members and non-members. The choice and opportunities that their services as financial intermediaries afford clients are of high value. IMBA s members wish to ensure that fairness, efficiency, choice and stability are respected when considering public policy and legislation with regard to mortgage brokering. Industry statistics indicate that mortgage brokers and agents facilitated approximately 25% of mortgage loan transactions in Canada. IMBA s members are of the opinion that the MBLAA must be enhanced with respect to consumer protection for both borrowers and investors/lenders. The mergers and disappearance of financial institutions over the past several years have resulted in loss of choice for consumers. Yet the opportunities for the sourcing of capital for home ownership, business start-ups and refinancing of debt have increased. Consumers are progressively and increasingly relying on the services of independent mortgage brokers and agents to understand their circumstances, expand and explain their options as well as negotiate fairer and better borrowing terms on their behalf. IMBA believes that any legislation must offer balanced protection for borrowers and private lender consumers, while at the same time encouraging a business environment in which Mortgage Brokers can successfully provide their clients with mortgage loans and investments that are the most appropriate to their needs and objectives. Private lender protection encourages the inflow of more capital into the residential and commercial mortgage markets, which in turn increases lender competition and in the long run improves borrower terms. Our members prepare, educate and equip themselves to meet the high standards and ever-evolving scope of service that borrowers and investor/lenders require of them. We have a responsibility to be ever-cognizant of these peoples needs as well as the needs of mortgage brokers and agents in Ontario. To this end IMBA respectfully submits our members comments with regard to recommended changes to the MBLAA and/or the regulations that form part of this act. IMBA appreciates the regard that the Government of Ontario has given our association and its members and hopes that our comments will be given consideration and prove helpful in refining the MBLAA as well as the regulations. We will comment on each area of the act and regulations in the order we perceive as the greatest priority.
Page 4 of 7 3.0 IMBA COMMENTARY 3.1 Education Review MBLAA Sec. 14 and Reg. 409/07 Education Standards (Broker/Agent/CE for both) A complete review of educational requirements and delivery systems must be undertaken in conjunction with the revised Act. This system must be developed with input from primary stakeholders, as well as reviewing what the various stakeholders may already have in place to assist in the development and delivery of both licensing and continuing education. Furthermore, a system of compulsory annual continuing education to maintain one s licence should be implemented. The existing education for a mortgage agent is inadequate. The courses currently being offered do not prepare them to deal with and properly serve the public. A comprehensive education program must be put in place that serves the needs of the brokerage community and the consumer. Agent education should include areas that are not only covered by the act and regulations, but go beyond the mortgage agent / broker qualifying standards (MAQS / MBQS) to those areas of mortgage brokering that an agent would encounter or find useful on a day-to-day basis. There should be an examination of the minimum requirements for becoming a mortgage agent, which should include the introduction of a probationary period during which new agents would receive training and support from their mortgage brokerage as a condition of satisfying the probation requirements before permanent licensing is granted. IMBA also recommends that the Minister and regulators review and upgrade the education standards for licensing of mortgage brokers. The above recommendations are designed to raise the knowledge and expertise levels of mortgage brokers and agents, thereby providing additional protection to the consumers by ensuring that they are working with a broker / agent who is qualified to offer the type that of mortgage that best suits the consumer. 3.2 Financial Institutions Exemptions MBLAA Sections 2.3.5 An area of serious concern for IMBA s members lies in the definition of the exemptions for financial institutions. At present banks, treasury branches, credit unions, loan corporations, trust corporations or insurance corporations are permitted to act as mortgage brokers and compete with licensed brokers while being exempt from the act. The present exemption not only places licensed industry members at a competitive disadvantage but also places the public at risk because of the unregulated brokerage activity.
Page 5 of 7 IMBA has no issues with these exemptions where the transaction involved is for the institution s own account. However, where the mortgage being originated by an institution (or their employee /subcontractor) is placed with a different institution or private lender, this becomes mortgage brokering and no longer an exempt activity. The institution should be required to register as a brokerage, and the employees/contractors as agents or brokers. The contention that they may be federally regulated is irrelevant, as the purpose of the act is not to regulate banking/trust activities, but rather mortgage brokering activities. When financial institutions representatives take applications that result in mortgages from different institutions or private lenders, they are brokering mortgages and should comply with Ontario statutes, which regulate that activity, and not be exempt from the regulations. The current exemptions for mortgage lenders regulated by license or registration under other acts, such as institutional lenders and their employees, should be limited to dealing with their own or their employer s loans, preventing these institutions and their employees from conducting mortgage brokering activities beyond their own or their employer s lending without being licensed under the MBLAA. Their exemption should be a limited exemption, specifically requiring their employees (contract or otherwise) to register under the MBLAA if arranging any mortgage for the account of any entity other than the institution by which they are employed. This, of course, would entail that the previously exempt institution now be required to be licensed under the MBLAA as a mortgage brokerage with a qualified individual as principal broker. It is our understanding that RECA, the regulator in Alberta, is contemplating the licensing of bank employees who generate and deal in mortgages for other than their employers accounts. 3.3 Errors & Omissions Insurance Ont. Regs. 188/08 It is in the consumer s interest that mortgage brokers and agents of brokers be required to carry errors and omissions insurance as a condition of their licensing. IMBA believes that the matter of errors and omissions insurance needs to be revisited to include mandatory separate coverage for mortgage agents / brokers. Agents/brokers must have errors and omissions (and extended fraudulent acts) insurance with personal coverage at the same level as the brokerage. Under the current regulation there is risk of inequity when one agent can have an effect on the brokerage E&O for everyone else. Mortgage brokers and agents operate as independent contractors and should therefore be responsible for their own coverage regardless of with which brokerage they choose to have their license. There is considerable risk to the consumer if a brokerage fails to have sufficient coverage due to the actions of one rogue or incompetent agent/broker. Non-offending agents/brokers should not be penalized if an incompetent or rogue agent/broker becomes employed by the brokerage. Offending agents/brokers may be forced to surrender their licences if they cannot pay higher insurance premiums. However, the current structure permits offending agents/brokers to simply transfer their
Page 6 of 7 licence to a brokerage whose principal broker does not suspect the future impact to his or her brokerage. 3.4 Financial Services Tribunal IMBA strongly recommends that a licensed mortgage broker be a member of the tribunal on all matters relating to licencees. A licensed broker s presence on the tribunal would lead to industry members having a better understanding of offences and could provide valuable insights and perspective to other members of the tribunal. 3.5 Lawyers Exemption MBLAA Section 6 The exemption for lawyers in 2.(8) requires further clarification. Many lawyers occasionally participate in mortgage brokerage activities, and in some cases with regularity, without registering under the act. If their activities are occasional, it is apparently not clear that the present act requires them to be registered. If their activities are more constant or active to the point or stage at which they are required to register is apparently not clear. The exemption for lawyers in 2.(8) should be further clarified and the wording of the exemption should clearly state that they are only exempt for transactions brought to them by their borrowing or lending client, and not by third-party referral. 3.6 Simple Referrals Ontario Regulations 407/07 We strongly recommend that simple referrals be further tightened by adding the provision that the receipt of any compensation and/or benefit, directly or indirectly, involving a transaction where a mortgage is the end result would be considered dealing in mortgages, subject to the exemptions prescribed in the act. This would facilitate capturing the many individuals who currently operate in grey areas and are not licensed as mortgage brokers or agents under the MBLAA. IMBA sees unregistered operators dealing in mortgages as one of the greatest threats to consumer protection in the mortgage industry, and so urges the Minister and FSCO to take actions to curtail their illegal activities. 3.7 Exempt Mortgage Lenders Deposits Ontario Regulations 407/7 Sec. 15 Currently, mortgage lenders who lend through the services of a mortgage broker or are a defined institution are exempt from licensing. IMBA is in favour of this exemption continuing as currently constituted. However, one of the largest risks to the borrowing consumer today is the private lender that takes a large deposit prior to closing and then, for various reasons, doesn t perform and fails to close, but keeps the deposit. IMBA very strongly recommends that exempt lenders (other than defined financial institutions) not be able to take any up-front fees or deposits other than a reasonable inspection fee and deposit for legal fees, which should be limited in amount similar to simple referrals.
Page 7 of 7 3.8 Retaining Records for 6 Years after expiry of term or renewal Ont. Regs. 188/08 Sec. 48 IMBA members are seeking clarity on regulation on securely maintain records for six years after expiry of term or renewal. The period is not consistent with any other current privacy regulations or any clear examples of investigations currently being undermined by the 3-year term. Any extension of time for record keeping impacts broker liability as the records must be maintained and secured; it also impacts consumer privacy. There appear to be no current examples of investigations being impaired due to records not being kept for such a long period. The regulation is too generic as it assumes all mortgages have an expiry date (i.e. HELOC s do not). IMBA recommends an arbitrary time limit for the retention of records to be six years from the date of completion of the initial mortgage transaction. 4.0 CONCLUSION The members of the Independent Mortgage Brokers of Ontario appreciate this opportunity to provide commentary with respect to the issues that affect the regulation of mortgage brokerage practitioners in Ontario. We welcome the opportunity to meet with you again to review our submission in further detail and should you require any further information please do not hesitate to contact us. Respectfully submitted, The