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.
Issue link: http://digital.canadawide.com/i/505959
16 | spring 2015 mbabc.ca MortgageBroker selfregulation In the mortgage brokering business, when you have a successful day, you make good things happen. You get mortgages approved, you save people money and you get them into a new home. When you are a regulator, a good day is a day when nothing bad happens. Nobody is defrauded; nobody loses their money, their home, their pension fund. Nobody finds out the insurance they thought they had isn't actually there or the money they deposited has gone missing. at's a good day for a regulator. e third thing to know about being a regulator is that the two most common criticisms you will meet are: 1) You acted too soon, you jumped the gun; or, 2) You acted too late; you were asleep at the switch. So you also spend a lot of time thinking about whether or when to intervene. Should I be proactive or should I wait and see if the markets look aer the problem? If you want to be in the business of self- regulation these are the types of challenges you want to start working on now, spotting the problems early and knowing when and how to intervene so that you protect the public and preserve confidence in the sector. It's a fine balance. So as I invite you to be a regulator for a day, I will share with you the things that FICOM is thinking about as we work to maintain that balance. Consumer debt level e first one of course is the housing market and consumer debt level. Find me a financial regulator who isn't worried about those things. I worry that the compensation structures in place for both lenders and brokers can make this worse. Compensation in your business is largely volume driven, so I wonder what the chances are that anyone ever has a conversation with a borrower about whether they can really afford the home they are buying, and the mortgage that goes with it, particularly if interest rates rise? I appreciate that our mortgage broker market is very different to the one in the U.S. but there are some growing similarities. I see more innovation and more alternate lenders being facilitated through brokers and I see more borrowers getting into mortgages that may meet a short-term need but may also be unsustainable in the long run. Where will the broker be when it's time to refinance? A self-regulated industry would be focused on these issues and looking for opportunities to avoid future problems. Having standards in place to ensure that borrowers are not encouraged to stress their repayment capacity beyond a safe margin would be a logical place to begin. We also need to ensure that information that is passed between borrowers and lenders is never manipulated or misrepresented. Getting borrowers into mortgages they cannot afford or lenders into deals they otherwise would not have made may feel like a win in the near term, but it will hurt your industry and potentially even the economy in the long term. Conflicts A self-regulated industry would also focus on tackling the issue of conflicts. If you look around at other industries you will see this is a pre-occupation of many regulators. CRM 2 in the securities industry, as an example, is proposing a ban on embedded commissions and a best-interest duty for advisors. So there is clearly some strong skepticism out there that financial advisors are able to set aside compensation and incentive models and make recommendations that are solely in the interest of their clients. A self-regulated industry would think about how to get ahead of this issue; how to improve disclosure and it may even go further to look at changes to compensation design to be sure that it does not place brokers in a position of having to choose between what is best for them and what is best for their customer. Nothing will destroy credibility and confidence faster than conflicts of interest. When you are a regulator, a good day is a day when nothing bad happens. –Carolyn Rogers