Mortgage Brokering in Ontario Agent Edition PDF

 MORTGAGE BROKERING IN ONTARIO 15th Edition Joseph J White ii Copyright © 2008-2022 by Joseph J. White. All rights reserved. Printed in Canada. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval sys...

 MORTGAGE BROKERING IN ONTARIO 15th Edition Joseph J White ii Copyright © 2008-2022 by Joseph J. White. All rights reserved. Printed in Canada. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the author. ISBN 978-1-988049-08-3 06142022 Most recent update: June, 2022 This publication is intended for educational purposes only, providing information deemed to be accurate at the time of publication regarding the mortgage industry in Ontario. Legal and other decisions related to financial transactions must be completed only after seeking advice from a competent professional person and must not be based on information contained herein. Neither the publisher nor the author is engaged in rendering legal or other professional advice. The events and characters in this book are fictitious. Any resemblance to persons, living or dead is purely coincidental.  iii Acknowledgements I’m truly grateful to work with some of the industry’s top professionals, who continue to challenge me and support me in my endeavors to keep this book the industry’s most relevant resource for new mortgage brokers. In researching and updating this book with the never-ending changes in our industry, I’ve relied on many different sources, which I’ve highlighted throughout. My special thanks to my editors, Jim Vaylin, Susan Horne and Holly DeRoia, for their patience, technical writing expertise, dedication and friendship. My thanks to all of the students of the Real Estate and Mortgage Institute of Canada Inc., Seneca College and the consortium of Ontario Colleges through Ontario Learn who have so richly enhanced my career and who constantly challenge my knowledge and assumptions. Special thanks to the Ontario Real Estate Association for permission to use their agreement of purchase and sale form. Sincere thanks to all my colleagues: the student support team at REMIC, including Dua, Eishe, Tearesse and Yasmine, for their constant support, input and dedication to our industry; Cain Daniel, the VP of Education and Strategic Partnerships at REMIC for his devotion to making the course based on this book such an enjoyable learning experience for our students; Kevin Rallings, our senior instructor for his constant invaluable input and feedback; JJ Booth, for his brilliant handling of all things technical. Finally, I would like to thank my incredible wife for her unwavering support, and my inspiring children for being such an amazing part of my life. Without them I would not be the man I am today. About the Author Joseph J. White is the founder and President of the Real Estate and Mortgage Institute of Canada (REMIC), the Association of Mortgage Investment Professionals (AMIPROS), and the Fraud Prevention Centre of Canada (FPCC), a national charity dedicated to the prevention of fraud. Mr. White has been a staunch supporter of the mortgage industry since 1988, when he began his career as a mortgage agent, and in the mortgage lending sector of the industry he has held positions as National Sales Manager and VP of Sales with two national mortgage lenders. In the industry’s mortgage brokering sector he is a licensed mortgage broker and has been a partner at a successful mortgage brokerage, manager at two national brokerages, principal broker at a commercial brokerage, founder of a mortgage investment corporation, and is owner and principal broker of his own boutique brokerage. As an educator, Mr. White has personally instructed over twenty thousand students since 1996, many of whom are now leaders in the industry. During his years at Seneca College he was a professor, program coordinator, subject matter expert and winner of the Excellence Award for exceptional leadership. In addition to having developed several courses for Seneca College, including the first mortgage broker education program in Ontario's history, he designed the mortgage agent course currently used by REMIC and Ontario's colleges. Mr. White has written two textbooks used in the mortgage industry and by over 20 Ontario colleges, with over fifty thousand copies in print, as well as several business focused books and e-books. iv Mr. White has made significant contributions to the growth of the mortgage industry. When he began his career in teaching, 120 students per year were taking the mortgage agent course. Because of his passion and dedication to helping those who want to make mortgage brokering their career, REMIC has become the largest mortgage educator in Canada, teaching over 10,000 students per year. Mr. White was inducted into the CMP Mortgage Hall of Fame in 2019. Mr. White can be contacted at [email protected]  v Table of Contents ACKNOWLEDGEMENTS........................................................................................................................................................................ III ABOUT THE AUTHOR.......................................................................................................................................................................... III I N T R O D U C T I O N....................................................................................................................................................................... 1 CHAPTER 1: MARKET OVERVIEW............................................................................................................................................. 3 LEARNING OUTCOMES........................................................................................................................................................................ 3 INTRODUCTION................................................................................................................................................................................. 3 1.1 WHAT IS A MORTGAGE AGENT/BROKER?................................................................................................................................ 3 Mortgage Agents vs. Mortgage Broker..................................................................................................................... 3 1.2 THE ROLE OF THE MORTGAGE AGENT...................................................................................................................................... 4 Pause for clarification – Mortgage............................................................................................................................ 5 Pause for clarification – Collateral mortgage............................................................................................................ 5 Pause for clarification – Line of credit...................................................................................................................... 5 Pause for clarification – Refinance........................................................................................................................... 5 Pause for clarification – Renewal.............................................................................................................................. 5 1.3 BENEFITS OF USING A MORTGAGE AGENT................................................................................................................................. 6 Pause for clarification – Discount............................................................................................................................. 6 1.4 INCOME POTENTIAL OF A MORTGAGE AGENT............................................................................................................................ 7 Pause for clarification – Mortgage proceeds............................................................................................................ 7 Commission from an Institutional Lender................................................................................................................ 7 Brokerage Fees......................................................................................................................................................... 8 Employee vs Independent Contractor...................................................................................................................... 9 1.5 INDUSTRY REGULATION........................................................................................................................................................ 9 The Regulator................................................................................................................................................................ 9 The Legislation............................................................................................................................................................. 11 MBLAA.................................................................................................................................................................... 11 Regulations............................................................................................................................................................. 11 Mortgage Brokerages.................................................................................................................................................. 11 Principal Brokers.......................................................................................................................................................... 11 Mortgage Brokers and Agents..................................................................................................................................... 11 Cost of Borrowing and Disclosure............................................................................................................................... 11 Mortgage Administrators............................................................................................................................................ 11 Licensing Exemptions.................................................................................................................................................. 12 Reporting Requirements............................................................................................................................................. 12 General........................................................................................................................................................................ 12 Penalties...................................................................................................................................................................... 12 1.6 KEY PARTICIPANTS............................................................................................................................................................ 12 Pause for clarification – Continuing Power of Attorney for Property..................................................................... 13 Success Tip – Real estate salespeople.................................................................................................................... 13 Pause for clarification – Loan to Value (also referred to as LTV)............................................................................ 14 1.7 A BRIEF HISTORY OF THE ONTARIO MORTGAGE INDUSTRY......................................................................................................... 15 1.8 LEGISLATIVE CHANGES TO PROGRAMS................................................................................................................................... 19 Pause for clarification – Stress Test........................................................................................................................ 19 Pause for clarification – Amortization, Loan to value (LTV), GDS and TDS............................................................. 19 1.9 REMIC.......................................................................................................................................................................... 22 1.10 MORTGAGE ASSOCIATIONS AND PROFESSIONAL DESIGNATIONS................................................................................................... 22 1.11 CHOOSING A BROKERAGE................................................................................................................................................... 22 1.12 KEY TERMS AND DEFINITIONS.............................................................................................................................................. 27 1.13 REVIEW QUESTIONS.......................................................................................................................................................... 32 Short Answer Questions.............................................................................................................................................. 32 CHAPTER 2: BASIC MORTGAGE CONCEPTS..............................................................................................................................33 LEARNING OUTCOMES...................................................................................................................................................................... 33 INTRODUCTION............................................................................................................................................................................... 33 2.1 WHY ARE MORTGAGES NEEDED?......................................................................................................................................... 34 Pause for clarification – Down payment................................................................................................................. 34 Pause for clarification – Down payment requirements for insured mortgages...................................................... 35 2.2 WHAT IS A MORTGAGE?.................................................................................................................................................... 35 vi Definition..................................................................................................................................................................... 35 Pause for clarification - Title................................................................................................................................... 35 2.3 WHAT IS A COLLATERAL MORTGAGE?................................................................................................................................... 36 Example....................................................................................................................................................................... 36 Main Benefit................................................................................................................................................................ 37 Main Disadvantages.................................................................................................................................................... 37 2.4 THE PURPOSES OF USING A MORTGAGE................................................................................................................................. 37 Purchase...................................................................................................................................................................... 37 Pre-approval........................................................................................................................................................... 37 Pre-qualification..................................................................................................................................................... 38 Government of Canada support for homebuyers................................................................................................... 38 1. First-Time Home Buyer Incentive............................................................................................................................ 38 2. Home Buyer’s Program (HBP).................................................................................................................................. 38 3. Home Buyer’s Amount (also referred to as the Home Buyer’s Tax Credit)............................................................. 39 Government of Ontario support for homebuyers.................................................................................................. 39 Land Transfer Tax Refund............................................................................................................................................ 39 City of Toronto support for homebuyers................................................................................................................ 40 Municipal Land Transfer Tax (MLTT) Rebate............................................................................................................... 40 Refinance..................................................................................................................................................................... 40 Equity Take-Out (ETO)................................................................................................................................................. 40 Bridge/Interim Financing............................................................................................................................................. 40 Construction................................................................................................................................................................ 41 5 Draws................................................................................................................................................................... 41 2.5 FINANCIAL COMPONENTS OF A MORTGAGE............................................................................................................................ 41 Face Value................................................................................................................................................................... 42 Term............................................................................................................................................................................ 42 Amortization................................................................................................................................................................ 42 Interest Rate................................................................................................................................................................ 42 Buying down an interest rate................................................................................................................................. 42 Compounding Frequency of the Interest Rate............................................................................................................ 43 Payment Amount......................................................................................................................................................... 43 Visual illustration of a mortgage.................................................................................................................................. 43 2.6 COMPOUND INTEREST........................................................................................................................................................ 44 Pause for clarification – Equivalent interest rates.................................................................................................. 46 2.7 INTEREST AND PRINCIPAL PORTIONS OF MORTGAGE PAYMENTS.................................................................................................. 46 2.8 THE MORTGAGE CONTRACT................................................................................................................................................ 47 Standard Charge Terms............................................................................................................................................... 47 Borrower Covenants.................................................................................................................................................... 48 Lender Covenants........................................................................................................................................................ 49 Pause for clarification – “Right to redeem”............................................................................................................ 49 2.9 MORTGAGE RANKS........................................................................................................................................................... 49 Pause for clarification – Power of Sale................................................................................................................... 50 2.10 CONVENTIONAL AND HIGH RATIO MORTGAGES....................................................................................................................... 50 High Ratio Mortgage................................................................................................................................................... 51 Pause for clarification – Self-insured lender........................................................................................................... 51 Conventional Mortgage............................................................................................................................................... 51 2.11 KEY TERMS AND DEFINITIONS.............................................................................................................................................. 53 2.12 REVIEW QUESTIONS.......................................................................................................................................................... 55 Short Answer Questions.............................................................................................................................................. 55 CHAPTER 3: MORTGAGE REPAYMENT PLANS AND OPTIONS..................................................................................................56 LEARNING OUTCOMES...................................................................................................................................................................... 56 3.1 TYPES OF MORTGAGE REPAYMENT PLANS.............................................................................................................................. 56 1. Partially Amortized, Blended Constant Payment Mortgage – Fixed Rate................................................................ 56 2. Partially Amortized, Blended Constant Payment Mortgage – Variable Rate........................................................... 58 Sample Variable Rate Clause.................................................................................................................................. 60 Success Tip – Determining a borrower’s needs...................................................................................................... 61 3. Partially Amortized, Blended Variable Payment Mortgage – Variable Rate............................................................ 61 For your information… Interest Rates.................................................................................................................... 62 4. Interest Only Mortgage........................................................................................................................................... 62 For your information… Interest Rates.................................................................................................................... 62  vii 5. Home Equity Line of Credit (HELOC)........................................................................................................................ 63 6. Interest Accruing Mortgage..................................................................................................................................... 64 7. Reverse Mortgage................................................................................................................................................... 65 8. Vendor Take-Back.................................................................................................................................................... 66 3.2 MORTGAGE FEATURES AND OPTIONS.................................................................................................................................... 67 1. Prepayment Options.......................................................................................................................................... 67 a) Fully Open........................................................................................................................................................... 68 b) Partially Open..................................................................................................................................................... 68 c) Closed................................................................................................................................................................. 68 Success Tip – Defining a “Closed Mortgage”.......................................................................................................... 69 2. Prepayment Penalties........................................................................................................................................ 70 a) 3 months’ Interest penalty................................................................................................................................. 70 Calculation of 3 months’ interest in John’s example................................................................................................... 70 b) Interest rate differential penalty........................................................................................................................ 70 3. Repayment Options........................................................................................................................................... 71 a) Periodic Payment Increase................................................................................................................................. 71 b) Accelerated Mortgage Payment......................................................................................................................... 72 Success Tip – Payment frequency........................................................................................................................... 75 c) Lump Sum Payment............................................................................................................................................ 76 d) Extended or Shortened Amortization................................................................................................................. 76 Extended Amortization................................................................................................................................................ 76 Shortened Amortization.............................................................................................................................................. 77. Cash Back Option....................................................................................................................................................... 77 5. Combined/Bundled Option...................................................................................................................................... 78 6. Portability Option.................................................................................................................................................... 79 Default insurance on ported mortgages................................................................................................................. 79 Blending interest rates........................................................................................................................................... 80 Example – Blending interest rates............................................................................................................................... 80 7. Assumable Option................................................................................................................................................... 81 3.3 KEY TERMS AND DEFINITIONS.............................................................................................................................................. 82 3.4 REVIEW QUESTIONS.......................................................................................................................................................... 86 Short Answer Questions.............................................................................................................................................. 86 CHAPTER 4: PROPERTY OWNERSHIP IN ONTARIO...................................................................................................................87 LEARNING OUTCOMES...................................................................................................................................................................... 87 4.1 PROPERTY....................................................................................................................................................................... 87 Real Property............................................................................................................................................................... 87 Personal Property........................................................................................................................................................ 87 4.2 HISTORY OF PROPERTY OWNERSHIP...................................................................................................................................... 87 More information – Expropriation......................................................................................................................... 88 4.3 ESTATES IN LAND.............................................................................................................................................................. 88 Fee Simple Estate........................................................................................................................................................ 88 Leasehold Estate.......................................................................................................................................................... 89 Life Estate / Life Lease................................................................................................................................................. 89 More information – Life Leases.............................................................................................................................. 89 Success Tip – Life Estate / Life Lease...................................................................................................................... 89 4.4 PROPERTY TYPES............................................................................................................................................................... 90 Types of Properties...................................................................................................................................................... 90 1. Detached............................................................................................................................................................ 90 2. Semi-detached................................................................................................................................................... 90 3. Row-townhouses:.............................................................................................................................................. 90 4. Condominium unit............................................................................................................................................. 90 5. Duplexes............................................................................................................................................................ 90 6. Co-operatives (co-ops):...................................................................................................................................... 90 Condominium Ownership............................................................................................................................................ 90 Condominium Types............................................................................................................................................... 90 1. Freehold condominiums..................................................................................................................................... 91 a) Standard condominium corporations...................................................................................................................... 91 b) Common Elements condominium corporations...................................................................................................... 91 c) Vacant land condominium corporations................................................................................................................. 91 d) Phased in condominium corporations..................................................................................................................... 91 viii 2. Leasehold condominiums................................................................................................................................... 91 Registering a Condominium........................................................................................................................................ 92 Pause for clarification – Declaration and Description............................................................................................. 92 Condominium Forms.............................................................................................................................................. 92 Forms Relating to Meetings and Voting...................................................................................................................... 92 4.5 SUBDIVISIONS.................................................................................................................................................................. 93 4.6 SURVEYS......................................................................................................................................................................... 94 What is a survey?.................................................................................................................................................... 94 More information – Surveys................................................................................................................................... 95 Association of Ontario Land Surveyors (AOLS)....................................................................................................... 96 4.7 LEGISLATION AFFECTING LAND USE IN ONTARIO....................................................................................................................... 96 The role of the Province of Ontario............................................................................................................................. 96 The Planning Act..................................................................................................................................................... 97 Ontario Building Code............................................................................................................................................. 97 The role of municipalities............................................................................................................................................ 97 Overview................................................................................................................................................................. 97 Zoning bylaws......................................................................................................................................................... 97 Municipal land use and planning............................................................................................................................ 98 4.8 ENCUMBRANCES............................................................................................................................................................... 99 Mortgages............................................................................................................................................................... 99 Easements.............................................................................................................................................................. 99 Restrictive Covenants........................................................................................................................................... 100 Building Schemes.................................................................................................................................................. 100 4.9 CO-OWNERSHIP OF REAL PROPERTY................................................................................................................................... 100 Tenancy in Common............................................................................................................................................. 101 Joint Tenancy........................................................................................................................................................ 101 4.10 THE LAND TITLES SYSTEM................................................................................................................................................. 101 Parcel Register...................................................................................................................................................... 102 Performing a Property Search.............................................................................................................................. 103 4.11 LOAN SECURITY: REGISTRATION AND DISCHARGE................................................................................................................... 104 The Charge/Mortgage.......................................................................................................................................... 104 Collateral Charge/Mortgage................................................................................................................................. 106 Schedule 1................................................................................................................................................................. 108 The Discharge of Charge/Mortgage...................................................................................................................... 108 Blanket Mortgages................................................................................................................................................ 109 Partial Discharge................................................................................................................................................... 110 4.12 JUDGMENTS, WRITS OF SEIZURE AND SALE OF LAND, AND LIENS................................................................................................ 110 Judgments................................................................................................................................................................. 110 What is a writ of seizure and sale of land?................................................................................................................ 111 Liens.......................................................................................................................................................................... 112 4.13 KEY TERMS AND DEFINITIONS............................................................................................................................................ 113 4.14 REVIEW QUESTIONS........................................................................................................................................................ 116 Short Answer Questions............................................................................................................................................ 116 CHAPTER 5: LICENSING.........................................................................................................................................................117 LEARNING OUTCOMES.................................................................................................................................................................... 117 INTRODUCTION............................................................................................................................................................................. 117 Pause for clarification – Disclosure....................................................................................................................... 117 Pause for clarification – Regulate......................................................................................................................... 118 5.1 ACTIVITIES REQUIRING A LICENSE........................................................................................................................................ 118 Dealing in mortgages................................................................................................................................................. 118 Trading in mortgages................................................................................................................................................. 118 Lending...................................................................................................................................................................... 119 Pause for clarification – Lending: licensed or not?............................................................................................... 119 5.2 LICENSURE..................................................................................................................................................................... 119 Pause for clarification – Licensure........................................................................................................................ 119 Four Licenses............................................................................................................................................................. 119 NEW licensing classes proposed........................................................................................................................... 120 Pause for clarification – Corporations, partnerships and sole proprietorships.................................................... 120 Restrictions................................................................................................................................................................ 120 Exemptions to Licensure........................................................................................................................................... 121  ix Pause for clarification – Vendor take-back........................................................................................................... 121 Having a License Issued by FSRA............................................................................................................................... 122 FSRA's Public Registry................................................................................................................................................ 122 For your information… FSRA’s public registry....................................................................................................... 123 5.3 THE MORTGAGE BROKERAGE LICENSE................................................................................................................................. 123 Licensing Requirements (Sections 1 – 3, Regulation 408/07).................................................................................... 123 Pause for clarification – Errors and omissions insurance (E & O)......................................................................... 123 Pause for clarification – Principal broker.............................................................................................................. 124 Suitability for Licensing (Sections 1 – 3, Regulation 408/07)..................................................................................... 124 5.4 COMPLIANCE CHECKLIST: MORTGAGE BROKERAGE................................................................................................................. 124 Managing the Mortgage Brokerage........................................................................................................................... 125 Keeping Records........................................................................................................................................................ 126 5.5 THE MORTGAGE BROKER LICENSE...................................................................................................................................... 126 5.6 THE MORTGAGE AGENT LICENSE........................................................................................................................................ 127 5.7 THE PRINCIPAL BROKER.................................................................................................................................................... 129 5.8 COMPLIANCE CHECKLIST: MORTGAGE BROKERS AND AGENTS................................................................................................... 130 Customer Relations................................................................................................................................................... 130 Disclosure.................................................................................................................................................................. 131 Business Practices...................................................................................................................................................... 133 Prohibited Activities.................................................................................................................................................. 133 5.9 THE MORTGAGE ADMINISTRATOR LICENSE........................................................................................................................... 133 5.10 FSRA’S MONITORING AND ENFORCEMENT........................................................................................................................... 134 Monitoring, checks, reviews and audits............................................................................................................... 134 Investigations........................................................................................................................................................ 134 Enforcement......................................................................................................................................................... 134 Prohibited Activities.................................................................................................................................................. 135 Pause for clarification – Prohibited activities....................................................................................................... 135 Penalty Types............................................................................................................................................................ 135 Pause for clarification – Administrative penalties................................................................................................ 135 Administrative Penalties....................................................................................................................................... 136 Pause for clarification – Financial Services Tribunal............................................................................................. 136 Administrative Penalties: Amounts...................................................................................................................... 136 Charges for an offence under the legislation........................................................................................................ 137 Charges for an offence under the MBLAA: Amounts............................................................................................ 137 Having a License Suspended or Revoked by FSRA..................................................................................................... 137 5.11 MORTGAGE BROKER REGULATORS’ COUNCIL OF CANADA........................................................................................................ 138 MBRCC Code of Conduct for the Mortgage Brokering Sector................................................................................... 138 Rationale and Background......................................................................................................................................... 139 For the industry.................................................................................................................................................... 139 For the consumer................................................................................................................................................. 140 Processes and practices........................................................................................................................................ 140 Supervision........................................................................................................................................................... 140 Complaint handling............................................................................................................................................... 141 Supervisory and complaints findings.................................................................................................................... 141 Enforcement and suitability.................................................................................................................................. 141 5.12 STAYING UP TO DATE ON REGULATORY REQUIREMENTS............................................................................................................ 142 5.13 SUMMARY..................................................................................................................................................................... 142 5.14 EXTERNAL RESOURCES..................................................................................................................................................... 142 5.15 APPENDIX 1: MORTGAGE BROKERAGE DECLARATION OF COMPLIANCE........................................................................................ 143 5.16 CHAPTER KEY TERMS AND DEFINITIONS............................................................................................................................... 144 5.17 REVIEW QUESTIONS........................................................................................................................................................ 149 True or False Questions............................................................................................................................................. 149 Short Answer Questions............................................................................................................................................ 149 APPENDIX 1: FSRA ORGANIZATION CHART AS OF NOVEMBER 8, 2019.................................................................................................... 151 CHAPTER 6: THE ROLE OF THE MORTGAGE AGENT...............................................................................................................152 LEARNING OUTCOMES.................................................................................................................................................................... 152 INTRODUCTION............................................................................................................................................................................. 152 6.1 WHO IS THE CLIENT?....................................................................................................................................................... 152 6.2 THE ROLE OF THE MORTGAGE AGENT AS ADVISOR................................................................................................................. 153 Lender Expectations.................................................................................................................................................. 153 x Borrower Expectations.............................................................................................................................................. 154 Success Tip – Act in the best interests of the client.............................................................................................. 155 Success Tip – Service is the key............................................................................................................................ 156 Success Tip – Stay up to date on lender’s products.............................................................................................. 156 Success Tip – Adopt the four borrower expectations........................................................................................... 157 The Law of Agency: more than just expectations...................................................................................................... 157 Agency.................................................................................................................................................................. 157 The agent and the principal.................................................................................................................................. 157 Agent’s duties to the principal................................................................................................................................... 158 Principal’s duties to the agent................................................................................................................................... 158 Termination of the agency........................................................................................................................................ 158 Agency between the mortgage brokerage/agent/broker and the borrower....................................................... 158 Agency between the mortgage brokerage and the mortgage agent/broker....................................................... 158 6.3 HOW A MORTGAGE AGENT ANALYZES/UNDERWRITES AN APPLICATION...................................................................................... 159 5 C’s of Credit....................................................................................................................................................... 159 6.4 THE STEPS IN A BROKERED TRANSACTION............................................................................................................................. 160 Pause for clarification- Origination software........................................................................................................ 161 Pause for clarification - Appraisal......................................................................................................................... 161 Pause for clarification – Amortization schedule................................................................................................... 162 6.5 KEY TERMS AND DEFINITIONS............................................................................................................................................ 164 6.6 REVIEW QUESTIONS........................................................................................................................................................ 166 Short Answer Questions............................................................................................................................................ 166 CHAPTER 7: INSURANCE IN THE MORTGAGE INDUSTRY........................................................................................................167 LEARNING OUTCOMES.................................................................................................................................................................... 167 INTRODUCTION............................................................................................................................................................................. 167 7.1 MORTGAGE DEFAULT INSURANCE....................................................................................................................................... 167 What is Mortgage Default Insurance?....................................................................................................................... 167 Background................................................................................................................................................................ 167 How Mortgage Default Insurance Works.................................................................................................................. 168 Default Insurance Programs...................................................................................................................................... 169 CMHC......................................................................................................................................................................... 169 Success Tip – CMHC Improvement program........................................................................................................ 170 Sagen......................................................................................................................................................................... 170 Canada Guaranty....................................................................................................................................................... 170 Default Management Programs (also known as “workout options”)........................................................................ 171 CMHC default management tools........................................................................................................................ 171 7.2 MORTGAGE CREDITOR AND LIFE INSURANCE......................................................................................................................... 172 Mortgage Creditor Insurance.................................................................................................................................... 172 Lender’s Mortgage Creditor Insurance................................................................................................................. 173 Life Insurance............................................................................................................................................................ 173 Critical Illness and Disability Insurance...................................................................................................................... 173 Third Party Insurance............................................................................................................................................ 174 Life Insurance............................................................................................................................................................ 174 More information – Whole Life Insurance............................................................................................................ 174 Success Tip – Partner with a professional............................................................................................................. 175 Mortgage Creditor Insurance vs. Term Life Insurance............................................................................................... 175 What insurance is best for your Client?.................................................................................................................... 175 7.3 PROPERTY INSURANCE...................................................................................................................................................... 176 What is Property Insurance?..................................................................................................................................... 176 Why is it necessary?.................................................................................................................................................. 176 Types of Property Insurance...................................................................................................................................... 177 7.4 TITLE INSURANCE............................................................................................................................................................ 179 What is Title Insurance?............................................................................................................................................ 179 Types of Policies........................................................................................................................................................ 179 Solicitor’s Opinion on Title vs. Title Insurance – A Comparison................................................................................. 180 Pause for clarification – “Solicitor’s Opinion on Title”.......................................................................................... 180 The Cost of Title Insurance........................................................................................................................................ 181 Making a Claim on a Title Insurance Policy................................................................................................................ 181 Providers of Title Insurance....................................................................................................................................... 182 Success Tip – Suggest title insurance to your clients............................................................................................ 182  xi 7.5 ERRORS AND OMISSIONS INSURANCE................................................................................................................................... 182 What is Errors and Omissions Insurance?................................................................................................................. 182 Errors & Omissions Insurance Requirements............................................................................................................ 183 7.6 KEY TERMS AND DEFINITIONS............................................................................................................................................ 184 7.7 REVIEW QUESTIONS........................................................................................................................................................ 190 Short Answer Questions............................................................................................................................................ 190 CHAPTER 8: BROKERING SPECIALIZATIONS...........................................................................................................................191 LEARNING OUTCOMES.................................................................................................................................................................... 191 INTRODUCTION............................................................................................................................................................................. 191 8.1 INDUSTRIAL, COMMERCIAL, INVESTMENT (ICI) MORTGAGE MARKET.......................................................................................... 191 1. Property................................................................................................................................................................. 192 Commercial:.......................................................................................................................................................... 192 Industrial............................................................................................................................................................... 194 2. Income................................................................................................................................................................... 196 Net Operating Income.......................................................................................................................................... 196 Debt Service Coverage Ratio................................................................................................................................ 196 3. Appraisal................................................................................................................................................................ 196 4. Environmental Site Assessment............................................................................................................................ 198 Phase 1................................................................................................................................................................. 198 Phase 2................................................................................................................................................................. 198 Phase 3................................................................................................................................................................. 198 Scope of the ESA................................................................................................................................................... 199 More information – Environmental Site Assessments......................................................................................... 199 Liability under the Environmental Protection Act................................................................................................ 199 5. Lenders.................................................................................................................................................................. 199 6. Timing.................................................................................................................................................................... 200 Success Tip – Commercial transactions................................................................................................................ 200 8.2 PRIVATE LENDING........................................................................................................................................................... 200 Rate of Return...................................................................................................................................................... 201 Pause for clarification – Second mortgage........................................................................................................... 201 Security................................................................................................................................................................. 201 Pause for clarification – Power of Sale................................................................................................................. 202 Challenges for the Private Lender......................................................................................................................... 202 Assessing the Risk...................................................................................................................................................... 202 Significant Capital Outlay........................................................................................................................................... 202 Reinvestment of Return............................................................................................................................................ 202 Lack of Liquidity......................................................................................................................................................... 203 Pause for clarification – Discounts and bonuses.................................................................................................. 203 Syndicated Mortgage Investment (SMI).................................................................................................................... 203 Pause for clarification – Permitted Clients........................................................................................................... 205 Pause for clarification – Non-Individual Permitted Clients................................................................................... 205 Indirect Investing in Mortgages................................................................................................................................. 205 Mortgage-Backed Securities (MBS)...................................................................................................................... 205 Mortgage Investment Corporation (MIC)............................................................................................................. 205 8.3 KEY TERMS AND DEFINITIONS............................................................................................................................................ 207 8.4 REVIEW QUESTIONS........................................................................................................................................................ 209 CHAPTER 9: MARKETING: THE IMPACT OF LEGISLATION AND REGULATIONS........................................................................210 LEARNING OUTCOMES.................................................................................................................................................................... 210 INTRODUCTION............................................................................................................................................................................. 210 9.1 LEGISLATION AND REGULATIONS................................................................................................................................................. 210 Mortgage Brokerages, Lenders and Administrators Act, 2006 (................................................................................ 210 MBLAA)...................................................................................................................................................................... 210 Public Relations Materials: Agents and Brokers................................................................................................... 210 Pause for clarification – Examples of public relations materials........................................................................... 211 Summary: What MUST be included in all Public Relations Materials of Agents and Brokers................................... 211 Misleading, Deceptive and False Advertising....................................................................................................... 212 Personal Information Protection and Electronic Documents Act (PIPEDA)................................................................ 214 Canada’s Anti-Spam Legislation (CASL)..................................................................................................................... 214 9.2 INDUSTRY GUIDELINES.............................................................................................................................................................. 215 xii The Canadian Code of Advertising Standards............................................................................................................ 215 Pause for clarification – Advertising Standards Canada....................................................................................... 217 Advertising Tips – Competition Bureau of Canada.................................................................................................... 217 Success Tip – Business cards................................................................................................................................. 218 Success Tip - Networking...................................................................................................................................... 218 Success Tip – Make the phone ring!..................................................................................................................... 218 Success Tip – Getting family and friends’ mortgages........................................................................................... 218 9.3 KEY TERMS AND DEFINITIONS..................................................................................................................................................... 219 9.4 REVIEW QUESTIONS................................................................................................................................................................. 221 Short Answer Questions............................................................................................................................................ 221 CHAPTER 10: BUILDING A BUSINESS AS A MORTGAGE AGENT..............................................................................................222 LEARNING OUTCOMES.................................................................................................................................................................... 222 INTRODUCTION............................................................................................................................................................................. 222 10.1 MARKET DEMOGRAPHICS AND TRENDS....................................................................................................................................... 223 Size of the Mortgage Market..................................................................................................................................... 223 Characteristics of the Canadian Mortgage Consumer............................................................................................... 224 Population by Age................................................................................................................................................. 224 Mortgage Consumer Survey Results..................................................................................................................... 224 Average Canadian’s Credit Score............................................................................................................................... 227 Pause for clarification – Credit score.................................................................................................................... 227 10.2 BUSINESS DEVELOPMENT FOR MORTGAGE AGENTS....................................................................................................................... 228 Mission and Vision Statements................................................................................................................................. 228 Business Cards........................................................................................................................................................... 229 Unique Forms of Business Cards............................................................................................................................... 230 Success Tip – Business cards................................................................................................................................. 231 Networking................................................................................................................................................................ 231 Success Tip - Networking...................................................................................................................................... 232 The Marketing/Advertising of Intangibles or Services............................................................................................... 232 Marketing: The Art of Differentiation........................................................................................................................ 233 Success Tip – Make the phone ring!..................................................................................................................... 235 Database Marketing.................................................................................................................................................. 235 Referrals.................................................................................................................................................................... 235 Success Tip – Getting family and friends’ mortgages........................................................................................... 236 10.3 THE INITIAL TELEPHONE CALL................................................................................................................................................... 236 Pause for clarification – Call scripts...................................................................................................................... 237 10.4 INCOMING CALL SCRIPT........................................................................................................................................................... 238 Tips for Success......................................................................................................................................................... 240 10.5 OUTGOING COLD CALL SCRIPT FOR REFERRALS............................................................................................................................. 240 Pause for clarification – Cold calls........................................................................................................................ 240 Success Tip – focus on your strengths.................................................................................................................. 241 10.6 KEY TERMS AND DEFINITIONS................................................................................................................................................... 243 10.7 REVIEW QUESTIONS............................................................................................................................................................... 245 Short Answer Questions............................................................................................................................................ 245 CHAPTER 11: THE INITIAL CONSULTATION............................................................................................................................246 LEARNING OUTCOMES.................................................................................................................................................................... 246 INTRODUCTION............................................................................................................................................................................. 246 11.1 FILE CREATION...................................................................................................................................................................... 246 File Worksheet........................................................................................................................................................... 246 Success Tip – Is your client working with someone else?..................................................................................... 248 11.2 MEETING THE CLIENT............................................................................................................................................................. 248 First Impressions........................................................................................................................................................ 249 Pause for clarification – Open-ended question.................................................................................................... 249 The Client’s Home..................................................................................................................................................... 249 Pause for clarification – Decision-maker.............................................................................................................. 249 The Mortgage Agent’s Office..................................................................................................................................... 250 Another Outside Location.......................................................................................................................................... 250 Virtually, via Online Meeting..................................................................................................................................... 250 More information – Online meetings................................................................................................................... 251 11.3 IDENTITY VERIFICATION........................................................................................................................................................... 251  xiii Acceptable forms of identification............................................................................................................................ 251 Driver’s License..................................................................................................................................................... 252 Ontario Driver’s License............................................................................................................................................ 252 Tips for reading an Ontario Driver’s License.............................................................................................................. 252 Ontario Driver’s License – person under age 19 (aged 16 to 18).............................................................................. 253 Attestations.......................................................................................................................................................... 253 11.4 THE APPLICATION FORM......................................................................................................................................................... 253 Section-by-Section Application Analysis.................................................................................................................... 256 Pause for clarification – Co-applicants, co-signers and guarantors...................................................................... 257 Tips for a Complete Application................................................................................................................................ 263 11.5 DETERMINING THE APPLICANT’S NEEDS...................................................................................................................................... 263 11.6 KEY TERMS AND DEFINITIONS................................................................................................................................................... 266 11.7 REVIEW QUESTIONS............................................................................................................................................................... 268 Short Answer Questions............................................................................................................................................ 268 CHAPTER 12: APPLICATION ANALYSIS – REQUIRED DOCUMENTS.........................................................................................269 LEARNING OUTCOMES.................................................................................................................................................................... 269 INTRODUCTION............................................................................................................................................................................. 269 12.1 REQUIRED DOCUMENTATION............................................................................................................................................. 269 File Checklist.............................................................................................................................................................. 269 Documentation for all Transactions.......................................................................................................................... 272 Specific Documentation for a Condominium............................................................................................................. 273 Specific Documentation for a Purchase..................................................................................................................... 273 Specific documentation for a Refinance, Equity Take-Out and Switch...................................................................... 273 12.2 INCOME DOCUMENTATION............................................................................................................................................... 273 T4A............................................................................................................................................................................ 273 Pause for clarification – Income Taxes and Self-employed commissions............................................................. 274 Success Tip - SIN................................................................................................................................................... 274 T4............................................................................................................................................................................... 276 Success Tip – EI premiums.................................................................................................................................... 278 Success Tip – Income tax rates............................................................................................................................. 279 T5............................................................................................................................................................................... 280 Tax Returns................................................................................................................................................................ 281 T2125 Statement of Business or Professional Activities....................................................................................... 281 T1 Income Tax and Benefit Return....................................................................................................................... 281 Job Letter................................................................................................................................................................... 282 Paystub...................................................................................................................................................................... 285 Stated Income Declaration Letter.............................................................................................................................. 285 Notice of Assessment (NOA)..................................................................................................................................... 287 Business License........................................................................................................................................................ 288 Financial Statements................................................................................................................................................. 289 Contents............................................................................................................................................................... 289 Balance Sheet Equation........................................................................................................................................ 289 Income Statement Formula.................................................................................................................................. 289 12.3 PROPERTY DOCUMENTATION............................................................................................................................................. 291 Multiple Listing Service (MLS)................................................................................................................................... 291 Purview...................................................................................................................................................................... 294 Agreement of Purchase and Sale............................................................................................................................... 299 Home Insurance Policy.................................................................................................................