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
22 | spring 2015 mbabc.ca MortgageBroker e Ontario government recently proposed changes to the regulations under Ontario's Mortgage Brokerages, Lenders and Administrators Act that enhance the mortgage brokerage industry's fraud avoidance obligations. ese proposed rule changes are strikingly similar to a set of rules put forward for comment in New Brunswick (see the Winter 2015 issue of Mortgage Broker magazine, page 21, New Brunswick Prepares to Regulate Mortgage Brokers). Given the focus of some jurisdictions on rules harmonization across the provincial borders, B.C. brokers may be interested in these proposed rule changes. One of the proposed Ontario rules prohibits a mortgage brokerage from acting for a "borrower, lender or investor in respect of a mortgage if the brokerage has reason to doubt that the mortgage, its renewal or the investment in it is lawful." Another rule requires a mortgage brokerage to advise a lender if it possesses a reason to doubt the legal authority of a borrower to mortgage a property. ese are serious and unique new proposed rules that are obviously geared towards reducing instances of mortgage fraud involving mortgage brokers. eir purpose would be to place a burden on mortgage brokers to discontinue acting either in the midst of a transaction or for a borrower if there is the potential for fraud. ese sections tackle the problem of wilful blindness, where a mortgage broker might close his or her eyes to a problem and claim that they were unaware of it or its relationship to a fraud. e challenge, however may be to find the right balance between the mortgage broker's obligation to serve a client against their broader duty to the industry to stop and prevent fraud. ese sections also place a very high burden on mortgage brokers and require them to have legal knowledge, which they may not possess, in order to assess the lawfulness of a transaction or the legal authority of a borrower. Whether a mortgage transaction is lawful or a borrower has the proper legal authority can be a highly technical matter, which is most likely within the expertise of a lawyer. MBABC suggested that different language be used in these sections, which could even encompass misconduct broader in scope than "unlawfulness." For instance, it could borrow language from the BC Mortgage Brokers Act, which prohibits mortgage brokers from being "a party to a mortgage transaction that is harsh and unconscionable or otherwise inequitable" or from engaging in any activity "which is prejudicial to the public interest." We also recommended adopting a higher threshold that triggers the obligation than "possessing a reason to doubt." Mortgage brokers have obligations to clients that are based on contractual obligations, but in some circumstances those client obligations may even rise to the level of a fiduciary or quasi- fiduciary duty. Having a reason to doubt the lawfulness of a transaction could conceivably be as low as a threshold of one per cent – having one reason to doubt the lawfulness of the transaction but having 99 reasons to believe in the lawfulness of it. Given that mortgage brokers have competing professional obligations to act for their clients and proceed with transactions, the trigger to abandon those obligations should be weighted much higher, such as "on a balance of probabilities" or 51 per cent in favour of the "unlawfulness" or "problematic nature" of the transaction. What do B.C. brokers think of the value of more stringent anti-fraud requirements for mortgage brokers? Share your views with us at editor@mbabc.ca. Ontario proposes stringent anti-fraud requirements, similar to those suggested for New Brunswick mortgage brokers Focus on Rules Harmonization By Samantha Gale Ontarioregulations