Mortgage Broker

lenders are outside the purview of regulation, and that mortgage brokers who use private lenders push borrowers into the unregulated world of shadow lenders, is ignorant. Alternative lenders are subject to provincial market-conduct regulation, usually in the form of mortgage broker and lender licensing. In addition, many, depending on their capital-raising model, are also subject to the fairly heavy hand of securities regulation. For certain, market-conduct regulation is quite distinct from the prudential regulation afforded to banks; it focuses more on protecting individual consumers of services than does prudential regulation. So, the suggestion that mortgage brokers – who are also governed by market-conduct regulation – "push" borrowers into something that could hurt them is a particularly uninformed opinion. Ironically, neither the prudential regulation over the banks nor the mortgage rules governing insured mortgages concern themselves with protecting individual consumers from predatory – or, I should say, "shadowy" – market conduct. e lack of market-conduct regulation in the banking environment is a serious problem in the context of bank mortgage brokers – the ones who negotiate mortgage arrangements for borrowers not with the bank itself, but with other third-party lenders. Some of these deals truly befuddle borrowers who walk in to a bank expecting to get a conventional bank mortgage and, instead, end up with a non- bank mortgage with an unfamiliar lender and unexpected broker or lender fees. Bank brokers do not provide borrowers with conflict-of- interest disclosures, which explain who the bank broker represents or how much the bank and bank broker get paid. Consents to these bank-broker arrangements are hidden in the midst of the small print of authorization forms, without any separate, independent discussion of how these brokering arrangements work. Licensed mortgage brokers represent their borrower clients – oen in a fiduciary capacity – by finding them the best, most suitable mortgage to meet their particular needs. But unregulated bank brokers generally forward deals to those lenders with whom they have set up contractual, predetermined relationships, which may not be in the best interests of the borrower. While the number of bank brokers may be relatively small, in some communities in Canada their volume of brokered mortgages can rival or even exceed that of licensed mortgage brokerages. erefore, their business is not insignificant and seems, by every definition, to be "shadowy." If you follow the Financial Post's lead and take a look at who is "pushing borrowers deep into … shadow [mortgages]," it is not the regulated alternative lenders or the licensed mortgage brokers who work with them, but rather the banks themselves, by engaging in unregulated mortgage brokering. e paradox of the "shadow banking" concept is that it is the banks themselves that are the real shadow bankers. CMB MAGAZINE cmba-achc.ca winter 2017 | 9

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