Mortgage Broker

MORTGAGEBROKER mbabc.ca fall 2015 | 7 report from the CEO WITH THE NEWS THAT THE REGISTRAR will soon require mortgage brokers to reveal to borrowers the compensation they receive from lenders hundreds of industry members, mostly from within B.C. but also from across the entire country, contacted us to ask about disclosure obligations under the Mortgage Brokers Act (MBA). Many wrote to state their concerns about the requirement; on page 27 we have printed some of those viewpoints. We have also examined the results of a Federal Trade Commission study on the issue of mortgage broker compensation disclosure (page 20). We know that the 45-year-old MBA is in dire need of modernization and in the case of section 17.3, some serious rehabilitation. Plain meaning of section 17.3 Section 17.3 of the MBA requires every mortgage broker who acts in a mortgage transaction to provide borrowers with disclosure of their direct or indirect interest in every mortgage transaction. e key word in section 17.3 is "disclose," which according to Black's Law Dictionary means to "make something known." But in the case of the MBA, is this "something" a simple description or is it a quantitative one? If you are asked to disclose the items in your garage, what would be an accurate response? It would be correct to say that there are lots of work tools, garden equipment and a car. You would not need to put a value on these items to answer the question. is is why I believe that a plain reading of the requirements set out in section 17.3 does not necessitate identifying the quantum of compensation, and the current practice of brokers to explain that they receive compensation from lenders and the kinds of compensation appears to fit within the statutory requirements of the MBA. Application of section 17.3 to lenders Some of our members have asked whether section 17.3 applies to lenders, as they have heard that they may be exempt from its application. Section 1 of the MBA defines lenders to be mortgage brokers. Section 17.3 would therefore apply to all mortgage brokers and lenders who act in a transaction – their obligation being to disclose their interest in the transaction to the borrower. ere is no trigger in this section, which only imposes a requirement if there is a conflict of interest, or an exemption if a lender is not representing the borrower. It is simply an obligation on lenders to disclose their interest if they are the lender in the transaction. However, a requirement for mortgage lenders to disclose conflicts to borrowers leads to an absurd and redundant result, but it also appears to be the right conclusion based on a plain reading of section 17.3. Flaws in section 17.3 e flaws in section 17.3 are numerous. e primary challenge is that there is no disclosure trigger based on a registrant having conflicting duties with the borrower, meaning some registrants, such as lenders, must provide disclosure even though they do not represent borrowers. Lenders should also not have to disclose self-evident matters, such as that their relationship contains conflicting interests with borrowers, or their compensation and mortgage interest, which for residential mortgage transactions is already disclosed in minute detail in the cost of credit disclosure forms. Another issue is that section 17.3 does not apply to submortgage brokers, who are the active intermediary between borrowers and lenders and should bear the burden of providing disclosure to borrowers. While section 17.3 does not necessitate the disclosure of quantum of compensation, we also know that in some circumstances, a quantitative description may be required. ese are instances where a broker has a fiduciary relationship with a client (discussed on page 16). Section 17.3 fails to recognize this obligation in these particular circumstances. How to fix section 17.3 While regulatory authorities oen have rule-making power under their enabling statute, we note that the MBA contains no such power for the Registrar. e MBA is very clear that the Lieutenant Governor in Council has power to make regulations but not the Registrar. e British Columbia Supreme Court was cognizant of these limitations in Registrar of Mortgage Brokers v. Financial Services Tribunal and Matick and ruled that the Registrar cannot fill in any gaps where section 17.3 contains inconsistencies, gaps or incomplete requirements. I understand the Ministry of Finance may soon be in a position to commence phase 2 of the legislative review of the MBA. It is time for the MBA to undergo a complete overhaul on the subject of conflict of interest disclosure, and a public consultation on the problems and solutions in this area is long overdue. The Mortgage Brokers Act's disclosure obligations are in dire need of an overhaul Samantha Gale CEO MBABC & MBIBC samanthagale @ mbabc.ca

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