Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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26 | summer 2019 CMB MAGAZINE mortgageregulation ENVIRONMENT e consultation document briefly describes a variety of environmental factors impacting the mortgage broker industry, including economic conditions, such as record high housing prices, continued low interest rates and constricted credit access. Most notably, increasingly restrictive mortgage underwriting rules for federally regulated financial institutions has led to a heavier reliance by home owners and buyers on private lending. We can further identify the following issues or trends as influencing the mortgage broker and lender environment. Government regulation not keeping pace with change: We agree that there are strong economic factors, driven in part by federal regulation, which have dramatically impacted mortgage consumers. However, we note that government legislation, regulation and policy which is designed to protect mortgage consumers appears to be unable to keep pace with the changes and respond appropriately. As an example, in British Columbia, the Mortgage Brokers Act was brought into force in 1972, and it has not been substantially amended since that date, despite being on the Ministry of Finance's legislative agenda since 2013. We acknowledge that recent structural changes of the regulators in Ontario and B.C. are intended to make them more responsive. However, it is likely that, with technological disrupters in the financial services sector, the pace of change will exponentially rise, and regulators may be in a race to provide effective regulation in a rapidly evolving landscape. Private Lending erroneously viewed as unregulated: We acknowledge that there appears to be greater demand for access to private mortgage loans and that building a more robust regulatory regime for private lending, which includes consistent cross- jurisdictional education and standards, is necessary. However, one challenge we experience is an apparent lack of understanding by both media and government of the current regulatory regime overseeing private lenders. For example, in British Columbia, the Ministry of Attorney General commissioned a review into money laundering in the real estate sector from former deputy RCMP commissioner and lawyer Peter German. e German Report states that "FICOM regulates brokers, not borrowers or lenders (unless they are credit unions, insurers or trust companies)" (emphasis added). e report continues to discuss mortgage lenders as "shadow lenders" and "unregulated lenders," without acknowledging the licensing regime under the Mortgage Brokers Act (MBA) which requires that both: n mortgage lenders who are in the business of lending, and n persons who lend on 10 or more mortgages per year obtain mortgage broker registration and be subject to the requirements of the MBA. e regulation of private mortgage lenders is, as you all know, market conduct regulation which focuses on regulating the activities of licensees for the purpose of protecting the public. is contrasts sharply with prudential regulation administered by the banking regulators, which focusses on ensuring the financial stability of the financial institutions subjected to the regulation. However, despite a media spotlight on the questionable conduct of salespeople employed by banks, there continues to be little market conduct regulation of the banking sector, including bank employees who act as intermediaries by placing borrowers with third-party lenders. e lack of market conduct oversight in the banking sector leaves significant regulatory gaps which exposes the public to unnecessary risk. ere appears to be a clear and unwarranted bias in the media and government towards conceiving of private lenders as "unregulated," while bank lenders are viewed as heavily regulated. e perpetuation of this fallacy influences the focus of government regulation. Understanding how we can fix problems through regulation requires that we start the conversation with a solid understanding of the regulatory landscape. Self-regulation of mortgage brokers – the S&P case: In March of last year, credit rating agency S&P Global downgraded the risk of smaller banks which utilize mortgage brokers in the origination process. Media reported that S&P advised, "As brokers do not bear credit risk for the residential mortgages they initiate and are generally compensated primarily on the

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