Mortgage Broker

CMB MAGAZINE cmba-achc.ca summer 2018 | 17 syndicated mortgages i n March, e Canadian Securities Administrators (CSA) published proposed changes to the regulatory framework for syndicated mortgages in Canada, which are intended to harmonize syndicated mortgage regulation from province to province. "e proposed amendments introduce a common regulatory approach for syndicated mortgages across Canada," said Louis Morisset, CSA chair and president and CEO of the Autorité des Marchés Financiers. "e measures also enhance investors' ability to make informed decisions when purchasing these investments." e CSA further advised that, "Under the proposed amendments, prospectus and registration exemptions that currently apply to syndicated mortgages in certain jurisdictions would be removed. As a result, investors would benefit from the potential involvement of a registrant." However, the CSA proposal was a challenge to analyze as it presupposes that the transfer of oversight over mortgage originations involving multiple lenders from a mortgage broker regime to a securities regime is simple, and perhaps just a matter of tweaking the application of the securities rules. When CMBA reviewed this proposal, we saw some major flaws in this approach. e following is part of our commentary to the CSA on this issue. nATuRE Of PROPOSAL And CMBA COMMEnTARy We appreciate the opportunity to comment on the CSA proposal, which contains a number of recommendations to amend available securities exemptions available to mortgage syndicators. e CSA proposal contemplates that the regulation of syndicated mortgages currently within the jurisdiction of mortgage broker regulators will transfer to or remain with securities regulators. e proposal therefore attempts to harmonize securities regulation relating to syndicated mortgages from province to province. Syndicated mortgage originations are particularly strong in the provinces of Ontario and B.C. e Financial Services Commission of Ontario (FSCO) reports that from 2016 Annual Information Return data, 105 mortgage brokerages in Ontario engaged in syndicated mortgage lending activity and funded $6.6 billion in syndicated mortgages. Further, 36% percent of all syndicated mortgage activity is originated by entities which are geared to syndicated mortgage lending on an exclusive basis, with the balance originated by brokerages in the course of their mortgage broker practice. is comment letter will therefore focus on syndicated mortgage practices in the provinces of Ontario and B.C. In addition, we are of the view that the CSA proposal contains some assumptions about the role of the licensed mortgage brokers who represent syndicated lenders and the structure of syndicate mortgage lending which are inaccurate and make the CSA proposal unworkable. We will therefore focus our comments on the challenges exempt market dealers would experience in taking over the role of dealing with syndicated mortgage investors from mortgage brokers. ThE OnTARIO CASE And B.C. ExAMPLE Of REguLATIOn In the 1990s there were no rules governing syndicated mortgages in B.C. However, legislative amendments to the B.C. Securities Act and Mortgage Brokers Act were introduced in 2000 aer facts surrounding the mortgage brokering activities of Eron Mortgage Corporation (Eron) came to light. Eron was suspended by the Registrar of Mortgage Brokers in 1997 aer it was found to have invested lender funds for syndicated mortgages without properly disclosing essential elements of the mortgage arrangements to the lenders. e new provisions divided syndicated mortgage activity into simple (qualified) syndications governed by the Mortgage Brokers Act and more complex (non-qualified) syndications governed by the Securities Act. e most significant consumer protection measure was the introduction of the lender disclosure form; it detailed essential information about the transaction and was to be provided by mortgage brokers to syndicated mortgage lenders prior to the release of funds to the borrower. Now 18 years later, an Ontario case, very similar to Eron, appears to have become the impetus for regulatory change in that province. Already, the Mortgage Brokerages, Lenders and Administrators Act has been amended with new statutory changes resembling those in B.C. ey result in the division of syndicated mortgages into qualified (simpler) syndications and non-qualified (more complex) syndications, with different rules applying to each category. As of July 1, 2018, Ontario mortgage brokerages that deal with non-qualified syndicated mortgage transactions will be required to comply with stricter compliance measures. However, the Ontario government has also recently adopted the objective of transferring regulatory oversight over syndicated mortgages from the mortgage broker regulator, FSCO, to the Ontario Securities Commission. is was Recommendation 17 of the expert panel report dated March 31, 2016, reviewing FSCO. Specifically, it recommended that "the government should require that documents issued to raise capital for syndicated mortgage investments be subject to the same level of regulation as the securities regulator applies to other offering documents used to raise capital in the Province." Mortgage brokers acting for lenders do not sell investments; they arrange, negotiate, structure and process the transaction.

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