Ontario Mortgage Broker/Agent Overview (PDF)

**[Chapter 1: Market Overview]** *[1.1 What is a Mortgage Broker/Agent?]* There are two licenses for mortgages in Ontario: agent and broker. The regulator in Ontario is the Financial Services Regulatory Authority Ontario (FSRA), formerly known as the Financial Services Commission of Ontario (FSCO...

**[Chapter 1: Market Overview]** *[1.1 What is a Mortgage Broker/Agent?]* There are two licenses for mortgages in Ontario: agent and broker. The regulator in Ontario is the Financial Services Regulatory Authority Ontario (FSRA), formerly known as the Financial Services Commission of Ontario (FSCO), changed as of June 8, 2019. FSRA defines a mortgage agent as a *"professional who deals or trades in mortgages for a licensed mortgage brokerage, under the supervision of a licensed mortgage broker. All individuals acting as a mortgage agent or broker in Ontario must have a license from FSRA. They must be sponsored by a licensed mortgage brokerage."* FSRA defines a mortgage broker as a "*professional who deals or trades in mortgages for a licensed mortgage brokerage. They may also be responsible for supervising activities of one or more mortgage agents. All individuals acting as mortgage agents or mortgage brokers must have a license from FSRA*." The difference between a broker and an agent is that a broker can supervise agents (if allowed by the brokerage), and be the principal broker of a mortgage, a role that is required to provide effective supervision of the brokerage's mortgage agents, among other duties. Each brokerage must have one principal broker to ensure that the brokerage, its agent and brokers, complies with the appropriate legislation and regulations. FSRA states, "*the principal broker is responsible for the conduct of the Mortgage Brokerage and its Brokers/Agents*." 'Effective supervision' means that the principal broker can show that he/she has taken reasonable steps to ensure every requirement under the *Mortgage Brokerages, Lenders, and Administrators Act, 2006* and regulations are met, and any contraventions are dealt with appropriately. *[1.2 The Role of the Mortgage Agent]* A mortgage agent/broker can be defined as a practicing professional, licensed by FSRA, who assesses a borrower's financial goals with respect to real estate financing and provides solutions to meet those goals by acting as an intermediary with the appropriate lending source. Typical activities of an agent/broker include: -Brokering a new mortgage, collateral mortgage, line of credit, or other type of loan secured by real property (which is land and whatever is affixed to it) through an institutional lender -Brokering the refinancing or switch of an existing mortgage through institutional lender -Providing mortgage advice and counsel, including renewal options. Mortgage brokers/agents can also provide specialized brokering, such as: -Private mortgages: buying, selling, and brokering mortgages between borrowers and private investors/lenders, and other mortgage investment entities (MIEs), such as MICs and syndicated mortgages. -Commercial mortgages: brokering mortgages for industrial, commercial, and investment (commonly referred to as ICI). In a brokered transaction, the agent has two clients: the borrower and the lender. In Ontario, the legal distinction between a mortgage a mortgage broker and agent is determined by licensing. Until July 2008, mortgage brokers had to be licensed in Ontario while agents were registered (not licensed) by their broker with FSRA. As a term, mortgage agent did not even exist in Ontario legislation until the *Mortgage Brokers Act* was replaced by the *Mortgage Brokerages, Lenders, and Administrators Act, 2006*. (2006 is part of the title, not established in 2006.) *[1.3 Benefits of Using a Mortgage Agent]* In Ontario, borrowers can either go directly to a lender or they can get financing through a registered mortgage brokerage. Here are 5 of the most popular reasons why borrowers can benefit from using a mortgage agent: **1: Choice:** brokerages have access to many lenders, like chartered banks, credit unions, monoline lenders (financiers that specialize in one type of lending), mortgage investment corporations (MICs), and private lenders. **2: Licensed Specialist**: Expert advice. **3: Rates**: since agents have more choice, they have access to special discounts (or rate specials), and generally brokerages will have access to the most competitive rates available. **4: Solutions**: since a mortgage agent is responsible for solving their client's problems, they can typically provide a better solution due to their larger access to different options (compared to a standard lender with only their products available). **5: Free, Expert Advice**: since the lender pays the agent for the deal, the client doesn't pay anything for the advice. *[1.5 Industry Regulation]* [The Regulator] FSRA is the regulator for mortgages in Ontario. FSRA is established as a self-funded Crown corporation with a Board of Directors consisting of members who are appointed by the Lieutenant Governor in Council of the recommendation of the Minister of Finance. The Authority is accountable, through the Minister, to the Ontario Legislature. See page 10 for a summary of the regulated elements of FSRA's day-to-day concerns as of December 31, 2021. In 2004, due to the increase in popularity of the mortgage agents and growth in the industry, the Ministry of Finance began the process of reviewing the Mortgage Brokers Act, the legislation in place at the time. The stated goals of the review were to ensure the legislation provided safeguards for the public, while giving mortgage agents fair and effective rules that encouraged industry growth and innovation. [The Legislation] The mortgage brokerage industry is regulated by one principal Act and its corresponding Regulations (including one that addresses Standards of Practice). See page 11 for a summary of the *Act and Regulations* in place. *[1.6 Key Participants]* **Mortgage Brokerage**: is the licensed mortgage brokering entity. Every agent/broker must be registered with a brokerage. If the brokerage stops authorizing the agent then their license will be suspended (until hired and authorized by another brokerage). **Principal Broker:** is a licensed broker who is designated by the brokerage to be its chief compliance officer. Under the MBLAA, the brokerage is licensed, and it must have one broker that is licensed as a principal broker. This person is responsible for the activities outlined in *Regulation 410/07*, which defines the role of the principal broker. **Institutional Lender**: typically lenders are grouped either as a institutional or private lender. Institutional lenders include chartered banks, credit unions, loan and trust companies, finance companies, or other corporations constructed to lend money on real estate. Referred to as the 'mortgagee'. **Private Lender**: typically an individual investor with funds who would like to invest in mortgages. This individual will usually invest through their lawyer who may have clients requiring mortgage financing or a mortgage agent. Typically private lending occurs for secondary mortgages due to their higher rate of return than primary mortgages (higher interest rates). Referred to as the 'mortgagee'. **Borrower**: is the individual/individuals that are taking the loan and pledging their property as security. Referred to as the 'mortgagor'. **Institutional Mortgage Originator**: several financial institutions have their own origination teams, referred to as 'Road Warriors.' These originators are compensated by their institution and are not consider 'brokering' a transaction since they are only using one lender. **Lender Business Development Manager (BDM) / Business Development Officer (BDO)**: this individual is employed by the lender, and is responsible for generating business from brokerages. They typically provide training sessions for groups of agents/brokers, provide support for failed applications, and act as a resource for agents/brokers who need assistance with the lender's products, underwriting guidelines, etc. **Real Estate Salesperson**: is the individual who brokers the purchase and sale transaction between a vendor (seller) and purchaser. **Real Estate Appraiser / Real Property Assessor**: the appraiser determines the market value of the property to be mortgaged. Real Estate appraisers do not need to be licensed in Ontario, but unless they have a professional designation, no lender will accept their appraisal for financing purposes. **Home Inspector:** the home inspector will advise the purchaser/homeowner in regard to the condition of the home and advise regarding issues surrounding its condition. The condition of the home naturally affects the market value of the property. **Mortgage Default Insurer**: provides default insurance policies to lenders typically offering high ratio mortgages, although default insurance can be provided on a mortgage loan of any LTV. The main insurers in Ontario include the government insurer, the Canada Mortgage and Housing Corporation (CMHC), and two private insurers, Sagen and Canada Guaranty Mortgage Insurance Company (Canada Guaranty). Typically, the lender will pass off this premium to the borrower. **Land Surveyor**: A licensed Ontario Land Surveyor (OLS) is a person who creates a specialized map, referred to as a survey, which is a legal document, of a parcel of land that details boundary locations, building locations, physical features, and other important items. **Lawyer**: they perform the following tasks in a mortgage transaction: -negotiating and drafting the Agreements of Purchase and Sale -acting for buyers and sellers on new or re-sale home, condo, or commercial purchases or sales -acting for borrowers or lenders on mortgage transactions, including preparing documents and registering documents. **Mortgage Credit Insurer**: is an insurer that provides a policy to the borrower so that upon a claim (in the case of death; there are additional creditor insurance policies), the mortgage loan is paid by a one-time lump sum payment to the lender. **Title Insurer**: is an insurer that provides a policy which [provides coverage for the insured's title]. It can compensate the insured for real losses associated with covered issues found in the terms of the policy. For example, if there was an old mortgage on title that was never discharged and this prevents the property from being conveyed to the purchasers, the titles insurance policy will take steps to remedy this situation. It also [assists in streamlining the closing process] (the lawyer closing the transaction), protects against fraud and forgery, and is available on purchases, refinances, and to homeowners who did not obtain a title insurance policy on either of those transactions. **Mortgage Administrator**: is a person or entity that services a mortgage loan on behalf of another. For example, an administrator may process payments, renewals, and discharges, provide correspondence and act to collect the mortgage arrears for a lender that has contracted them. Under the MBLAA, mortgage administrators are licensed in Ontario. Regulation 406/07 of this legislation defines a mortgage administrator as one who is 'taking steps, on behalf of another person/entity, to enforce payment by a borrower under a mortgage."