Mortgage Broker

8 | spring 2017 cmba-achc.ca CmB magazine editorialsummary Much has been written about the cause of the recent problems with Home Trust, which at this stage, the mortgage broker industry is all too familiar with. As we know, a recent Statement of Allegations published by the Ontario Securities Commission (OSC) gave the media enough fodder to launch a frenzy, spinning some fairly rudimentary allegations relating to investor disclosure into an all-out mortgage and housing catastrophe akin to the 2008 U.S. subprime meltdown. e media frequently manufactures news, primarily because it is a business and stories always need an angle to grab the attention of readers and viewers to fuel the impression count demanded by advertisers. However, the rapid rise of blogs, news sites and social networks has created a fragmented audience with declining ad revenues and low profit margins. e media now appears to readily churn out cheaply produced, poorly researched stories which are continuously repurposed as new news, when in reality, they're the same old stories. A review of the OSC allegations against Home Trust does not show anything really out of the ordinary. Home Trust, like all lenders of its size, was exposed to application data fraud. It responded with what most people would consider an appropriate and measured riposte – terminating mortgage brokers who were connected to the applications from submitting further deals to it. Broker culls in mortgage lending are fairly routine. In all, 45 brokers were terminated, and as we now know, only two of them were disciplined by the mortgage broker licensing regulator in Ontario – the Financial Services Commission of Ontario. Perhaps we will see more fallout from the broker side, but so far nothing further has come to light from a review of the various regulators' websites. is hardly represents a large-scale, conspiratorial fraud. Certainly the banking industry has seen some massive frauds, involving hundreds of related perpetrators, which mostly come to light through the civil litigation process, but this is not one of them. Despite this, the OSC chose to take a tough stand against Home Trust. In its Statement, the OSH alleges that "HCG misled its shareholders as to the immediate and ongoing causes of the decline in Originations. Internally, HCG knew it had terminated certain brokers because it had discovered fraud in HCG's broker channels." It further states that "HCG failed to satisfy its continuous disclosure obligations in its 2014 Annual Filing and Q1 2015 Interim Filing, by making statements that in a material respect and at the time and in light of the circumstances under which they were made, were misleading or untrue…" We might further ask the OSC whether investors were hurt by the alleged lack of disclosure, and if they were hurt, was it greater than the harm caused by the ensuing media frenzy over the regulatory action? Professor Jack Mintz from the University of Calgary reminds us that: "If there is a lesson in all this, it is to get facts right in the first place. Home Capital provided loans to under-serviced borrowers, which some might assume were higher risk, but in reality proved not to be any more risky than the big banks' borrowers." 1 While we need regulators to keep in line brokers who may commit mortgage fraud or how the media and the regulators – overzealous and under-informed – manufactured a mortgage industry scandal by Samantha Gale, CmBa exeCutive DireCtor the truth about home trust we need to ask whether politicians, government and media really understand the mortgage industry.

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