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
selfregulation ese businesses, like yours, are regulated and most require licensing. You cannot, for example, offer any insurance advice unless you are licensed to do so. is includes creditor life and disability insurance. ese products can be sold through exempt channels but they must be structured to comply with legislation and they cannot be sold as advised products. Private lending Private lending fills a legitimate need and has a legitimate place in the economy. Many private lenders have been established and successful in this market for many years. More recently though, we see a proliferation of private lenders and we are also seeing what were traditionally very small, closely held private lenders, grow rapidly. e risks that we are worried about are two-fold: First, the genesis of some of these private lending operations are brokers themselves. Brokers either put their own money in, or they participate in the solicitation of the investors that fund the MICs, as well as in sourcing the mortgages for the MICs. It seems to me the key value proposition of brokers is and always has been that you don't work for the lenders. is is how you sell yourself to the public and how the public understands your role and your value. is should be every bit as true for private lenders and MICs as it is for banks. As brokers increasingly become invested in, or connected to MICs, their independence can become compromised. ere is an opportunity to be proactive as an industry to set out some self-regulating principles that guard against this risk and make sure that the public is not compromised, or seen to be compromised, in any way. e broker community needs to be extra vigilant when placing a borrower with a private lender. You need to be cognizant that these lenders are not regulated the same way as licensed financial institutions are, and therefore the level of scrutiny you, as a broker, need to place on the terms and conditions is greater. e legislation we all work with has some room to catch-up to the innovation in our industry and the area of private lending is a good example. If we rely on the legislation we are held to a standard of "harsh and unconscionable;" the terms of a private loan cannot be "harsh and unconscionable". A self-regulated industry would set the bar much higher than that. e history le behind from the U.S. mortgage crisis casts the mortgage broker industry as a having a major role in what happened because borrowers were put into mortgages that were designed to become gradually less affordable – the now famous adjustable rate mortgages. ese mortgages weren't illegal and at the time no one seemed to consider them harsh and unconscionable either. In fact they were considered innovative and customer friendly because they made homeowners out of people who were never homeowners before. Wall Street loved them, Washington loved them; everything was good. e tide was rising and all the boats were floating. But then the tide went out. And in hindsight, adjustable rate mortgages are considered to be the epicentre of the worst financial meltdown in modern history. And when the tide went out the brokers, the lenders and the regulators were all accused of swimming naked. So what can we learn? When you are placing a client with a private lender, particularly a client who is hard to finance, make sure you are setting them up for success in the long term. Don't assume they can get out of the deal a year from now. Make sure they will not be trapped in the payday loan equivalent of a mortgage. And if you want to be proactive, perhaps it's time for the broker community to put together some standards of conduct or some consumer education – or both – for dealing with private lenders. How will you and your borrowers avoid the mistakes that were made in other jurisdictions? If harsh and unconscionable is a lower standard than you want to set for yourself and your clients, then what is the standard you will use instead? ese are questions a self-regulating industry would ask. is is an edited version of the speech delivered by Carolyn Rogers, Registrar of Mortgage Brokers at the Financial Institutions Commission, at the 2015 MBABC Convention and Trade Show in Richmond, B.C. MortgageBroker mbabc.ca spring 2015 | 21 8 Steps to self-regulation Carolyn rogers, Registrar of Mortgage Brokers at the B.C. Financial Institutions Commission suggests this eight-point checklist as a starting point to self-regulate the mortgage brokering industry in B.C. Step up your vigilance on consumer debt; commit as an industry to not put people in mortgages they cannot afford. Never, ever misrepresent or manipulate information between a borrower and a lender and if you see someone else do it, report them to FICOM. Avoid conflicts. And if, for some reason, you cannot avoid them be very clear and very proactive in disclosing them. If you find disclosing a conflict makes you uncomfortable it's a good sign that you should not be involved in the transaction at all. Don't tolerate dishonest behaviour and conduct in your sector. It reflects poorly on us all. Report it. Never front or pay referral fees for unregistered activity and report those that do. Take your education seriously and invest in it. If you are going to expand your business into other products and services it's up to you to determine the licensing and compliance requirements before you get started. Set boundaries and standards for dealing with private lenders that will ensure that your borrower will be positioned for a positive, long-term outcome. This will position you and your industry for a positive outcome. 1 2 3 4 5 6 7 8