Mortgage Broker

ratingrebuttal CmB magazIne cmba-achc.ca spring 2018 | 39 t he Canadian Mortgage Brokers Association wrote to S&P Global (S&P) in March concerning some inflammatory statements the ratings agency made about brokers and the risk they pose to banks. More specifically, S&P is reported to have said that, "As brokers do not bear credit risk for the residential mortgages they initiate and are generally compensated primarily on the quantity (not quality) of residential mortgage applications they process, we believe brokers have less incentive than a lender's own staff to prevent fraud." 1 We understand that S&P has, as a result of this view, downgraded the risk assessment of smaller banks which utilize mortgage brokers in the origination process. We let S&P know the following about the risk borne by mortgage brokers and fraud: You should know that in most provinces across Canada, which include British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and New Brunswick, mortgage brokers are licensed professionals, who must adhere to strict regulatory requirements. Unlike mortgages processed by a bank's internal staff, mortgage brokers are directly accountable to an external, independent regulator. As you are likely aware, bank mortgage specialists, employed by banks to arrange mortgages internally, have recently come under close scrutiny by the media and federal government for their high-pressure sales tactics and lack of external accountability. Both regulators and mortgage lenders have taken, and continue to take, an exceptionally serious stand against mortgage fraud and against brokers who lack due diligence in their origination process. For instance, the most recent penalty decision posted by the B.C. regulator imposes maximum penalties of $50,000 against two disciplined individuals. In addition, the industry itself imposes very high expectations on its members. Mortgage brokerages, our own association and a myriad of mortgage lenders all require mortgage brokers to conduct business ethically and honestly. e act of getting cut off from a lender seriously impairs a broker's ability to arrange mortgages, and can even end that broker's career. Many lenders have a zero-tolerance policy for fraud and will, for instance, cut off a broker from further business for seemingly innocuous conduct, such as changing a date on application without the borrower's express consent. Furthermore, all regulatory action against licensed mortgage brokers is reported on a database called REDX, which oen results in the broker's getting "blackballed" by lenders for even light regulatory infractions. e industry therefore polices itself very strictly. While mortgage brokers do not obviously bear any risks for borrower defaults under the mortgages they originate, they do bear risks for engaging in mortgage fraud or a lack of due diligence in which they fall below the standards of lenders or regulators. ese risks are tangible and can oen have an immediate impact on the broker's career. Mortgage brokers therefore have significant incentives to prevent fraud, which may be even greater than those of lenders. e CMBA urged S&P to better understand the practices of mortgage brokers and the lenders that use them for mortgage originations in their evaluation process of mortgage lender risks. Despite the letter being directed to several high-ranking S&P staff members, CMBA has not yet received a response. 1 news.buzzbuzzhome.com/2018/02/canadians-concerned- mortgage-fraud-credit-rating-agency-thinks.html Setting the Record Straight a response to S&p's mischaracterization of mortgage brokers' role By sAmAnthA gAle

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