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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Page 8 of 47

CMB MAGAZINE summer 2019 | 9 editorialsummary n e German report makes several statements indicating that private lenders are "not subject to statutory AML oversight." It accordingly suggests extending AML legislation to certain classes of unregulated lenders, such as mortgage investment corporations. Fact check: Private mortgage lenders which capital raise under securities legislation, such as mortgage investment corporations, are required to comply with mandatory AML reporting requirements as securities dealers. n e German report finds mortgages discharged within a year as suspicious, as homeowners usually "take many years to repay a mortgage." If a mortgage is quickly repaid, it "suggests that the borrower has access to significant capital and/or cash flow and may be an indication that they withheld funds from their purchase by choice." Fact check: As the industry is well aware, it is standard practice for private mortgage lenders to require borrowers to have an exit plan so that they do not hold the mortgage long term. Mortgage brokers are experts in finding exit strategies for private mortgage borrowers – this is part of their job, and hardly suspicious. n In one footnote, the German report states: "FICOM regulates brokers, not borrowers or lenders (unless they are credit unions, insurers or trust companies)." Fact check: is statement is patently wrong. e Registrar of Mortgage Brokers, housed in FICOM, licenses mortgage lenders under the Mortgage Brokers Act. In fact, in B.C. not only are mortgage lending entities required to obtain mortgage broker registration, but so too are all employees who perform lending activities on behalf of the entity. In this regard, B.C. has more stringent licensing requirements for private mortgage lenders than other provinces. n e German report states, "Private lenders, including MICs ... are not subject to the same regulations as banks and credit unions (including market conduct regulations and AML reporting)." Fact check: As stated above, private lenders and employees who engage in mortgage lending, administration and brokering actives must be licensed under the Mortgage Brokers Act. Licensing programs are by their very nature market conduct regulation. Licensees must undertake education qualification, be subject to suitability reviews and abide by a set of statutory prohibitions and requirements. ose licensees who fail to follow market conduct rules potentially face discipline by their regulator. ere is transparency in the discipline process of mortgage brokers and lenders as allegations against them in the form of notices of hearing and final adjudications in the form of orders are published for all to see. Mortgage lenders who engage in capital-raising activities also require additional licensing as securities dealers – not a light licensing regime by any industry standard. Whereas mortgage brokers are regulated by provincial legislation, banks are regulated by federal legislation. Accordingly, they are held to different regulatory standards in many respects, such as those concerning reporting, registering of employees and disclosure to the customer/ client. In many respects (such as duty to the client and acceptable sales practices), individual mortgage brokers are regulated more strictly than are individual bank employees. In other respects (such as continuing financial viability), the entity of a bank is more strictly regulated than is the entity of a mortgage brokerage. e German Report's incessant use of the term "unregulated lenders" to describe private mortgage lenders and its view that banks are subject to superior (rather than different) market conduct oversight demonstrates a lack of understanding of the mortgage industry and its regulation. In order to properly tackle money-laundering problems in the mortgage sector and make appropriate policy reforms, a solid understanding of the mortgage industry and its regulation is an absolute necessity. Money laundering is a serious problem desired by neither government nor industry – understanding and collaboration will be the keys to success in tackling it. The German Report's incessant use of the term "unregulated lenders" to describe private mortgage lenders and its view that banks are subject to superior market conduct over- sight demonstrates a lack of understanding of the mortgage industry.

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