Mortgage Brokering – News You Need, volume 2
In this issue
- Better access to licensing services
- Consumer protection concerns identified in private mortgage examinations
- Improved disclosures needed for legacy NQSMIs
- New NQSMI quarterly report provides data for more effective monitoring of trends
- Consumer protection strengthened as Financial Planner and Financial Advisor titles set to be regulated in spring 2022
- Protecting financially vulnerable mortgage borrowers
- Adhering to duties when recommending new financing models
- Stay in the loop
Welcome to the second edition of the Financial Services Regulatory Authority of Ontario’s (FSRA) MB Newsletter. Our first MB Newsletter was a success and we thank you for your support. We strive to provide you with relevant information in this and future issues to support the industry’s compliance.
Speaking of firsts, FSRA launched its first public campaign to educate consumers on what they should expect when working with a FSRA-licensed mortgage professional. Consumers are being encouraged to ask questions that reflect the Mortgage Brokering Code of Conduct. The campaign is running from November until the end of March.
Thanks to everyone who helped us spread the word and showed consumers how you are embracing the Code. All of this work supports our collective effort to protect consumers and enhance public confidence in the sector.
With respect to newsletter content, this issue provides you with updates on our licensing activities and supervision activities for private mortgages and non-qualified syndicated mortgage investments. We also highlight upcoming regulatory initiatives that impact you, including:
- the new financial advisor / financial planner title protection framework that is expected to come into force in the spring of 2022
- collection of consumer profile data to help us focus on examining brokerages that service financially vulnerable borrowers
If you have feedback about our newsletter, including topics that you would like to see covered, please feel free to reach out to us at [email protected].
I want to take this opportunity to thank the industry for your continuous engagement by sharing your perspectives on the sector and our supervision. I also want to thank my FSRA colleagues for their dedication and hard work in carrying out our regulatory mandate.
Head, Financial Institutions and Mortgage Brokerage Conduct
A strong gatekeeping role is a cornerstone of FSRA’s licensing activities. To protect consumers, FSRA ensures that individuals and businesses are qualified and suitable for a licence.
Since FSRA’s inception, the licensing team has been working to improve the efficiency of its processes. At the same time, it has strengthened the effectiveness of its gatekeeping role. We are proud to share that we have successfully completed various initiatives that made it easier for you to access licensing services. We are continuing to improve our efficiency and effectiveness, for example through our FSRA Forward transformative project.
See Better access to licensing services for more information about completed and upcoming Licensing initiatives.
Mortgage brokerages, brokers and agents are helping more consumers arrange alternative and private mortgage financing options. Some of these consumers may be more financially vulnerable. FSRA is concerned that they could be taken advantage of in private mortgage transactions.
FSRA’s mortgage conduct supervision team sought to better understand the “real-world” nature of private lending transactions, as outlined in the 2020/2021 Mortgage Brokering Sector Supervision Plan. FSRA also assessed the role of the mortgage broker/agent as intermediary. We did so by conducting examinations of brokerages engaged in private lending or arranging private mortgages. We also solicited feedback both anecdotally and through our Mortgage Brokering Technical Advisory Committee.
Overall, we identified practices that are generally not consistent with the consumer protection intent of certain regulatory requirements.
See Consumer protection concerns identified in private mortgage examinations to learn more about our examinations and findings.
A market disruption such the COVID-19 pandemic creates uncertainty and can increase the general and specific risks of non-qualified syndicated mortgage investments (NQSMIs). This is especially true for various legacy NQSMIs that are reaching the end of their investment terms.
Borrowers, potentially facing liquidity concerns, may choose to extend or renew their investments to avoid a default. In these situations, FSRA is concerned that administrators are not providing investors with complete, accurate and objective information about the circumstances under which their mortgage investments are being extended or renewed.
In December 2021, FSRA completed the desk review examinations of 18 NQSMI projects across six mortgage administrators. FSRA found that administrators did not sufficiently disclose conflicts of interests to consumers. In addition, administrators’ policies and procedures manuals were not properly established according to Ontario regulation and did not reflect administrators’ business activities.
See Improved disclosures needed for legacy NQSMIs to learn more about our examinations and findings.
As of July 1, 2021, the OSC oversees non-qualified syndicated mortgage investments (NQSMIs) sold to non-Permitted Client investors/lenders (i.e., less sophisticated investors). This provides SMI investors with protections that are consistent with other securities sold to the public.
FSRA continues to regulate NQSMIs sold to Permitted Client investors/lenders. Mortgage brokerages must now file a quarterly report on NQSMI transactions with Permitted Clients. This new reporting replaced the requirement to file the Disclosure Form 3.2. The data from the new report allows FSRA to more effectively monitor trends. These reporting changes also significantly increase regulatory efficiency for the industry.
See New NQSMI quarterly report provides data for more effective monitoring of trends for findings from the first NQSMI Quarterly Report.
Consumers should be confident that they are receiving financial planning and advisory services from qualified individuals.
To strengthen consumer protection in the financial services sectors, the Ontario government and FSRA are targeting to implement Ontario’s new title protection framework in the spring of 2022. Once implemented, the framework will protect titles for financial planners and financial advisors in Ontario. It will also set minimum education standards for use of these titles.
With the introduction of the framework, mortgage agents or brokers must obtain, or already have, an approved credential if they hold themselves out as a Financial Planner or Financial Advisor.
In recent years, financial services regulators have begun to focus more on understanding how their regulated sectors’ activities impact financially vulnerable consumers. These consumers are more susceptible to harm or financial exploitation. They may also be more prone to unfair treatment by their financial services providers.
In keeping with its consumer protection mandate, FSRA will target mortgage brokerages that may be dealing with financially vulnerable consumers for examination. If a brokerage is selected for review, it does not mean that it is high risk, but that it is dealing with a segment of the population that requires more protection.
To help us identify these brokerages for review, FSRA will collect information on key demographic indicators of financially vulnerable consumers.
See Protecting financially vulnerable mortgage borrowers for details on the data that brokerages will be requested to provide.
Significant increases to housing prices have led to the emergence of new financing programs to make home buying easier. Some of these programs are a variation of the rent-to-own model, while others focus on helping homebuyers with down-payments. Most of these models include a shared ownership structure and proportionate or shared stakes in equity creation.
Some of these new financing models may involve new challenges or risks to consumers compared with more traditional mortgage loans.
FSRA would like to remind the mortgage brokering sector of their duties when recommending these new financing structures to clients, especially as they pertain to completing and properly documenting suitability and preparing clear and accurate disclosure. These duties are outlined in the MBLAA and its regulations, applicable FSRA Guidance and the MBRCC Code of Conduct which was adopted by FSRA.
Brokers, agents and brokerages who do not comply with these duties may be subject to enforcement or supervisory action.