What remains top of mind for the regulator?
Ontario’s mortgage brokering regulator doubled down on its top current areas of focus in a presentation to mortgage professionals at last week’s Canadian Alternative Mortgage Lenders Association (CAMLA) event in Brampton.
Antoinette Leung (pictured), head of financial institutions and mortgage broker conduct at the Financial Services Regulatory Authority of Ontario (FSRA), told attendees that amid a continuing high-interest-rate environment and an impending wave of mortgage renewals, making sure consumers get suitable mortgage advice remained a key focus for the organization.
Disclosure – especially where there may be a real or perceived conflict of interest on the part of the agent or broker – is also top of mind, Leung said, with FSRA particularly attuned to how mortgage professionals are advising that flurry of homeowners with mortgages set to renew.
“Definitely a focus is really on consumers who have to renew a mortgage,” she said. “Consumers who are getting into the market… may actually have the option to [decide], ‘OK, maybe we hold off or maybe we go in,’ but for those who are renewing, they actually have very little choice. So that’s something that is top of mind for us.”
FSRA has begun enforcement proceedings against a mortgage broker and related entities for alleged violations including dealing in mortgages outside of the licensed firm and operating as a lender without proper licensing. https://t.co/6eclb3UGqZ#mortgagenews
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 18, 2024
Suitability especially top of mind in high-rate environment
While speculation has grown recently that the Bank of Canada could bring its benchmark rate slightly lower over the summer, Leung said rates are likely to remain at an elevated level for a prolonged period – leaving many borrowers potentially vulnerable.
“As a regulator, the biggest [thing] we’re looking for is consumers get a mortgage and they understand what it means for them,” she said. “So that means that mortgage brokers have a very important role to play in helping consumers understand.”
The regulator started conducting more on-site supervision of mortgage brokerages after the COVID-19 pandemic receded – a practice that’s likely to continue moving forward, Leung said – while on the advisory front, it’ll be taking a close look at how the mortgage brokering sector is taking the steps to know the client and their specific circumstances before making a recommendation.
Another focus: mortgage investments. “We started this program over a year ago and we will continue… really looking at how mortgage investments are being sold and how they’re being administered,” Leung said. “That’s something that we think will continue to pose risks because of the rate environment.”
Based on consumer complaints and surveys, she said, many investors aren’t fully aware of what a mortgage investment actually entails.
“They think from their perspective it’s just like real estate and that is a bit of a concern for us – because we all know it’s different,” she said. “[It’s] about leveraging – so when things do well, an investor could make more money but when the market is not doing well and the value drops, they could lose more.”
Focusing on disclosure, transparency on fees and mortgage suitability
On the mortgage fee and payment disclosure front, Leung emphasized the requirement that fees be communicated in writing and included in the cost of borrowing disclosure and annual percentage rate (APR).
“When we’ve done examination over the last few years, we’ve noticed that over 50% of the transactions that we reviewed have understated a new percentage being returned – the cost of borrowing,” she said.
“This is something from our perspective that’s really important because as consumers get more and more into private mortgages, there are more fees attached to it. So it’s really important for them to understand the actual cost.”
FSRA’s guidance on mortgage suitability is set to be finalized shortly, with many sector best practices – Know Your Client, Know Your Product, assessing options and making appropriate recommendations – having recently been formalized.
The onus is on principal brokers, Leung emphasized, to ensure their brokerages are fully compliant with guidance related to documentation and ensuring a clear paper record of all advice conveyed to clients.
While clients with a relatively simple solution – for instance, qualifying with an A lender – are unlikely to need a huge amount of documentation, the situation is usually different for private mortgages.
“Your level of documentation [in the A side] is not likely to be as extensive as when you are going to have to recommend a private mortgage, just because a private mortgage can be very different,” Leung said.
“It’s not just for compliance. It’s also to make sure that you have the documentation that you share with your client so that when there’s any disagreement or misunderstanding, it’s there in writing.”
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