In this issue

Welcome

Welcome to the first issue of FSRA’s Mortgage Brokering newsletter.  

We are launching this newsletter to help you stay informed about FSRA’s views, activities and expectations of the mortgage brokering and administration sector. We aim to bring information about best practices and emerging trends right to your screens. 

As mortgage professionals, you play an important role in helping many Ontario consumers finance what is probably the largest financial investment of their lives: purchasing a home. You also help the real estate industry source funding and capital for property developments. The topics shared in this newsletter will help you understand how to better protect consumers and what to do to comply with the law and requirements of your licences.

In our first issue, you’ll learn about our Mortgage Brokering sector supervision focus for 2021-22. We’ll also share our findings from supervision activities conducted during the previous fiscal year.

Protecting consumers and enhancing public confidence in our regulated sectors is a shared effort between FSRA and the industry. As a result, a key priority for us is to enhance collaboration with our stakeholders through sharing perspectives and seeking input. Launching this newsletter is one way to achieve this.  

If you have feedback or comments about our newsletter, suggestions for improvement, or simply want to reach out to us to discuss market trends or conduct matters, please contact us at MBConduct@fsrao.ca

FSRA supervision: year in review and looking forward

The current low interest environment is fueling demand for homes as well as interest in real estate and mortgage investments. This raises certain consumer protection risks.

FSRA’s goal is to respond to market needs and demands, and ensure consumers have knowledge and protection for their mortgage or mortgage investments. 

Based on our supervision findings and analysis of the current environment, FSRA’s 2021-2022 supervision focus in the mortgage brokering sector are:

  1. mortgage brokerage’s practices in private lending; 
  2. mortgage administrator’s activities, especially those administering riskier mortgages for non-sophisticated investors;
  3. continued analysis of Principal Broker supervision questionnaire responses, with the goal of publishing best practices guidance; and
  4. monitoring development of the non-qualified syndicated market investment (NQSMI) market after transferring certain oversight responsibilities to the Ontario Securities Commission.  

To learn more, see Mortgage Brokering sector supervision plan 2021-22.

Principal Broker supervision

Principal Brokers are responsible for supervising their brokerages, brokers and agents to ensure they comply with regulatory requirements and put an adequate focus on their customers’ needs and interests. FSRA relies on Principal Brokers to influence and set the tone for compliance at their brokerages. 

Last year, we requested information from the Principal Brokers of all our licensed mortgage brokerages. The information we collected allows us to better understand the environment under which Principal Brokers operate, such as the size of the brokerage, the organizational structure, the authority level of the Principal Broker, compensation and allocated resources, as well as the compliance activities they carry out. 

For detailed information about our findings, see Principal Broker Supervision.

Evolution of non-qualified syndicated mortgage investments (NQSMI) supervision

NQSMIs, by their nature, are more complex types of mortgage investments and may not be suitable for all investors. In certain high profile NQSMI cases, many investors did not have financial knowledge or financial resilience; many lost their investments and a few lost their life savings. 

In 2017, the Ontario government announced that that the regulation of NQSMIs would be transferred from FSCO (FSRA’s predecessor) to the Ontario Securities Commission (OSC).  FSRA, the OSC and the Ministry of Finance worked collaboratively to design the new regulatory regime for NQSMIs. In the interim prior to the transfer, the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) was amended to enhance investor protection, and FSRA launched the real-time supervision program and targeted reviews of NQSMIs.  

See Evolution of non-qualified syndicated mortgage investments for more on FSRA’s supervision of NQSMIs and the new regulatory regime. 

Real-time supervision of NQSMI

FSRA introduced the real-time supervision program for NQSMIs after its launch in 2019. Our goals were to identify any disclosure issues that prevented consumers from making informed investment decisions and request that the brokerage address them right away.

In this program, we review disclosure (in Form 3.2) that was provided to the first actual or potential investor at the time when an NQSMI was being marketed. This was a key component of our supervision in 2020-21.

See Real-time supervision of NQSMIs to learn about the key findings from this program.

Legacy NQSMI review

During 2020-2021, we also examined a number of mortgage brokerages and an administrator (that is related to one of the brokerages) to assess their practices in disclosing updated information to NQSMI investors after the initial investment.  

Given the market disruptions caused by the pandemic, we expected some borrowers would need to renew or extend their mortgages past their initial contractual terms. We also expected that the performance of mortgage investments might fluctuate significantly during their terms, especially for NQSMIs that are considered higher risk. 

As a result, our examination focused on disclosures on these NQSMIs that were provided to investors when a renewal or extension was requested and during the term of their investments. 

See Legacy NQSMI review to learn more about our examination and findings.