Mortgage Broker

CMB MAGAZINE cmba-achc.ca spring 2016 | 21 The MorTgage Broker IndusTrY has engaged in a voracious debate over the issue of compensation disclosure since B.C.'s Registrar of Mortgage Brokers published an open letter announcing her intention to improve "compen- sation transparency" in January. e Registrar has now advised in a follow up letter that she and her staff have carefully reviewed the submissions from the industry and other members of the public. e Registrar's office has settled on some key aspects of their plan to implement new disclosure requirements. n e Mortgage Brokers Act clearly places the burden of providing disclosure on the mortgage brokerage (the registered mortgage broker) and not the individual broker (the registered submortgage broker). n e regulations of the Act provide for a one-page disclosure form, which will be used going forward. It will replace the enhanced disclosure form introduced by the Registrar several years ago. n To explain the disclosure requirements to the industry, and to equip brokers to complete the disclosure form, the Regis- trar's office will prepare guidelines. e guidelines and other requirements are expected to be completed by September 2016, with implementation planned for January 2017. So while we now know which form will be used to provide conflict of interest disclosure, we must wait to find out what the actual disclosure requirements will be. e MBABC had written to the Registrar's office at the close of the consultation period to express some concerns about the proposal to require disclosure of specific dollar amounts, and to offer some alternative solutions. We are optimistic that the new guidelines will take some of these issues into consideration. e concerns with a proposal to require mortgage brokers to disclose specific dollar amounts of compensation received from lenders to borrowers are numerous and demonstrate a solid need for consideration of whether the proposal is appropriate. For example, the proposal anticipates that a broker will, early in the brokering process, be able to determine the amount of compensation he or she will receive. However, that does not accord with the experience of the industry. e process is far more dynamic, with the structure of possible transactions and the options of vari- ous lenders changing as the process progresses. It would be virtually impossible for a broker to definitively disclose the amount of commis- sion before the process reaches completion. ere are simply too many variables. Also, requiring a broker to disclose the bonus they are to earn on a specific trans- action does not provide the consumer with a meaningful basis to compare that trans- action with transactions the broker did not recommend. e disclosed information would not provide the con- sumer with the information needed to assess the broker's motivation for recommend- ing that specific mortgage. e annual percentage rate (APR) and Total Cost of Credit are disclosed to the borrower in a cost of credit disclosure form. ese values, the former expressed as a rate and the latter as a dollar value, reflect the cost of the transaction to the client; having access to APRs and Total Costs for different possible transactions allows the consumer to meaningfully understand and compare the true costs of each one. Given that mortgages are all about borrowing funds at a cost, the cost is the focus issue for the client. A mortgage client is generally already in the market to obtain a mortgage loan before contacting a broker. e broker advises the client regarding the competing mortgages available in the marketplace. In this sense, mortgage trans- actions are defined as retail transactions wherein the broker provides the client with a product or commodity with objectively comparable criteria, such as APR or interest rate. eir approach is centred primarily around product advice. Granted, a certain amount of the client's finan- cial circumstances must be gathered in order to provide product advice, but that amount is very limited compared to that need by a general financial adviser. A client who contacts a financial adviser is generally far less certain as to products in which they are interested. Rather than advice focused on a specific type of product, the financial adviser needs to gather a wide range of financial data concerning the client to advise them on financial planning strategies and the suitability of particular finan- cial products selected from a wide range of options. Because the mortgage broker's advice is focused on type of product whereas the general financial adviser pro- vides the service of financial planning and identifying the range of suitable products, disclosure plays a very differ- ent role for each. e range of products from which a financial adviser can choose makes it impossible to arrive at a number which can sum- marize matters as easily or objectively as can a mortgage broker by disclosing the APR and Total Cost of Credit. e additional disclosure would add nothing of value to the mortgage broker- ing process and, as discussed elsewhere in this feature, add needless detrimental qualities. e cost of doing business, including the cost of complying with regulatory requirements, is ultimately borne by the consumer. is is a re- ality related to mortgage brokering just as surely as it is a reality in business generally. Increased costs of complying with regulation are passed on by mortgage brokers to lenders, who then includes the costs in pricing transactions. is follows the fundamental necessity of business. is is not a statement that all regulation is an unnecessary expense. It is a statement that where there is no realistic opportunity of increased compliance requirements providing real public protection, the cost of compliance unnecessarily increases the cost to the public of having access to the services. is is so even if the cost of compliance is minor. Every requirement of compliance, disclose&destroy The cost of doing business is ultimately borne by the consumer. Increased costs of complying with reg- ulation are passed on by mortgage brokers to lenders, who then include the costs in pricing transactions.

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