We are seeing some encouraging signs in the mortgage sector.
After completing a review of eight brokerages with previously noted disclosure and suitability assessment deficiencies we are seeing steady improvement. This is important as these brokerages recommend to consumers private mortgages from a related Mortgage Investment Corporation (MICs).
Ontario’s private mortgage market continues to grow. Because this is a complex product that’s not suitable for everyone, disclosure and suitability assessments are key for brokerages working with such mortgages. This especially applies in situations where Mortgage Investment Corporations, used as lenders, are related to a brokerage recommending a private mortgage.
Necessary disclosures include disclosing conflicts of interest and potential risks of the recommended product. Disclosures help consumers understand the mortgage’s terms, risks and conditions, whether it’s the right choice for their needs and assess if the brokerage’s advice is impartial.
What we did
We reviewed 10 additional mortgages originated after March 2023 by eight brokerages who we previously noted had deficiencies in their disclosure and suitability assessments. The review was designed to allow the brokerages sufficient time to incorporate compliance enhancements to their origination processes.
We assessed if the selected brokerages adequately improved their suitability assessments, documentation, conflict of interest disclosure and Annual Percentage Rate of borrowing (APR) calculation and disclosure.
What we found
Six of the eight brokerages had largely improved the quality and recording of suitability assessments and had improved disclosure to borrowers.
Two of the six brokerages had not transacted sufficient mortgage business by the time the monitoring period concluded on December 31, 2023. Of the business completed, we noted that the mortgage files demonstrated significant improvements relating to suitability and disclosures, including APR calculations.
For the two brokerages that still demonstrated deficiencies relating to suitability and disclosures, including APR calculation errors in their mortgage files, we will be considering further monitoring to determine whether additional regulatory actions are required.
Background
In August 2022, we reviewed transactions that involved brokerages who used related MICs to fund the mortgages presented to the brokerage’s clients. We examined 15 brokerages who fully controlled and/or had a controlling interest in a MIC. Our goal was ensuring suitable products were being recommended and appropriate disclosures being provided when borrowers were recommended a product from the brokerage’s related MIC, especially with mortgages where the brokerage represented both the lender and the borrower.
Learn more about these reviews in our previous newsletter.
We discovered that better product disclosure and product suitability assessment were required. Of the 15 examined brokerages, eight had compliance deficiencies that we deemed severe enough to require warning letters (including an escalation to the Legal and Enforcement team in one case) and additional monitoring.
Ongoing oversight
The related MIC monitoring activity concluded on December 31, 2023, subject to the two brokerages requiring FSRA staff’s continuing monitoring.
As previously communicated, a compliance blitz related to APR calculation will be coming in the 2024-2025 fiscal year.