Mortgage Broker

22 | winter 2015 mbabc.ca MortgageBroker structure their business to act as both bank and licensed broker. HLC is able to perform the full gamut of mortgage broker activities on behalf of its parent bank entity under its various provincial mortgage broker licenses. Accordingly, we recommended that the proposed mortgage broker exemption for banks and their employees be tightened to reflect the interdependent, but separate, roles of lender and broker. Exemptions for referral sources MBABC also made recommendations concerning mortgage broker licensing exemptions for referral sources. People who make incidental mortgage referrals, such as a realtor who recommends a mortgage broker to a purchaser, should not be captured by a requirement to obtain mortgage broker licensing. However, entities and individuals who actively solicit mortgage referrals as a business should not be exempt from mortgage broker licensing. Businesses that specialize in mortgage lead generation or providing mortgage referrals to brokers for a fee have exponentially proliferated over the last 10 years. Mortgage lead generation involves an entity or individual gathering lists of potential mortgage borrowers, who are considered to be "mortgage leads." e lists of mortgage leads are then sold to mortgage brokers, who may contact the individual leads for the purpose of attempting to arrange mortgage financing for them. e lists of potential mortgage borrowers are oen generated through the Internet by setting up a website that may provide mortgage information or mortgage advice and providing a simple form of mortgage application. e application data is gathered by the mortgage lead generator and then forwarded to the mortgage broker. Mortgage leads may also be generated over the telephone by telemarketers contacting persons and enquiring about their interest in obtaining a new mortgage or refinancing a current mortgage, in addition to gathering personal and financial information from the potential borrower. To consumers, mortgage lead generators or mortgage referral businesses oen resemble mortgage brokers and lenders. In many cases, it is impossible for the public to differentiate them from a broker. MBABC therefore recommended that the referral exemption be revised to ensure that individuals or entities who actively solicit mortgage referrals not be exempt from the requirement to obtain mortgage brokering licensing. Advance fees and costs One of the proposed rules prohibits a mortgage brokerage from charging or receiving fees or other remuneration from borrowers until the mortgage has been funded and registered in the applicable land title office. MBABC knows that the purpose of any prohibition against taking advance fees is to prevent advance fee fraud, wherein a fraudster will promise to loan money in return for an upfront fee. e fraudster then pockets the advance fee with no intention of funding the loan. However, an outright prohibition against advance fees could potentially cripple the mortgage broker industry in New Brunswick. MBABC therefore suggested that New Brunswick adopt a more balanced approach to the issue of advance fees which takes into account the mortgage broker's right to be compensated for valuable service provided to the public. e challenge for many mortgage brokers is that they may be reluctant to take on difficult mortgage clients, when their fee is contingent on their application actually being approved and funded. Oen mortgage files require many hours of preparation, document management and negotiation. Sometimes mortgage commitments are obtained by mortgage brokers (aer they have invested significant amounts of time into the file), but the client will eventually opt for alternative financing or decline the offered financing. is can happen even at the last minute, just prior to closing. Most professionals, including lawyers, accountants and realtors, are able by contract to negotiate advance fees. Lawyers, for example, commonly ask for a retainer of funds from a client, which is kept in a trust account and withdrawn only when the services and an account have been rendered. Advance fees are permitted by mortgage brokers in Ontario for residential mortgages with a principal sum of over $300,000. In Alberta, mortgage brokers are entitled to charge fees in advance of mortgage commonissues

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