Borrower Disclosure Forms

 

While the MBLAA 2006 does not provide for standardized borrower disclosure forms, all forms used by brokers and agents must be approved by RMA. Should a broker/agent choose to use a form other than the one supplied by D&H Expert, those forms must be approved in advance and must be in total compliance with the legislation.
Brokers wishing to enter into contractual agreements with their clients must have all sample contracts and forms approved in advance prior to their use. All broker/client contracts must be in full compliance with MBLAA 2006.

 

Fees and Restrictions

 

Fees

 

A mortgage broker or agent shall not receive, directly or indirectly, any fee or other renumeration for dealing or trading in mortgages from a person or entity other than the brokerage on whose behalf he or she is authorized to deal or trade in mortgages (O. Reg. 187/08, s.4 (1)

 

Advance Fees & Funds

 

The MBLAA (O. Reg. 188/08, s. 37 (1) contains very specific rules regarding the collection of advance fees and funds for mortgage transactions.

 

In every case, you are prohibited from collecting advance fees for mortgages of $300,000 or less — if the principal amount of the mortgage is $300,000 or less, the Mortgage Brokerage cannot require or accept an advance payment/deposit for services to be rendered and expenses to be incurred by the Brokerage or any other person.

 

For Private mortgages, you are also prohibited from receiving funds from investors/lenders in advance. Neither the Mortgage Brokerage nor the Mortgage Broker/Agent is permitted to receive funds from an investor unless an existing mortgage is available, or from a lender unless a mortgage application has been made on a specific property (O. Reg. 188/08, s. 38 (1, 2)

 

Indicating Fees are Government-Approved

 

You may not at any time indicate that Mortgage Brokerage fees are approved by the government or any government authority (O. Reg. 188/08, s. 20 (1)

 

Guarantees

 

You are prohibited from offering any guarantees to borrowers regarding future interest rates on variable-rate mortgages, or any other guarantees regarding their mortgage that is not explicitly stated in the mortgage commitment or mortgage instrument.

You are prohibited from offering guarantees to lenders/investors — you cannot offer a guarantee to a lender/investor regarding a mortgage loan or mortgage investment. (O. Reg. 188/08, s. 16)

 

Private transaction where the lender is not an institution

 

Introduction

 

Private Lenders (also known as Investors by the MBLAA) are a special case in our industry. Mortgages provided to Borrowers from Private Lenders must be treated with greater care and due-diligence due to the nature of our relationship to both the Borrower and Lender in these cases. The following section outlines some of the special considerations, policies, and documentation surrounding Private Lending within our Brokerage.

 

It is imperative that these rules be followed, as FSCO will be performing full audits of each and every mortgage brokerage in Ontario over the next year to verify that this information is in place, and that these policies and procedures are being followed.

 

Principal Broker Must Approve All Private Lenders

 

One of the biggest changes to the Private Lending world contained in the MBLAA and its Regulations is the need for the Principal Broker to evaluate and approve all Private Lenders used by any Agent or Broker within their Brokerage.  This means that a physical file containing full Private Lender information must be maintained at the Brokerage’s head office. A full investor risk profile conducted on the Private Lender must also be in the file in order to verify the suitability of each and every mortgage investment presented to them (O. Reg. 188/08, s 10 (2), s. 11 (1, 4)

 

It is important to note that, while the Principal Broker must approve all Private Lenders and maintain a file on them, it does not mean that this Private Lender will be accessible directly to all Agents and Brokers in the firm. This process should ensure the protection of these private sources of funds.

 

Know Your Client Form for Private Lenders

 

In order for any Agent or Broker to work with a Private Lender, the first step is to have the Lender fill out a “Know Your Client” form for Private Lenders. It is the policy of this Brokerage that this form must be filled out, reviewed and approved by the Principal Broker, and filed at the Brokerage head office before we will process mortgage loans from this Private Lender. (O. Reg. 188/08, s. 24 (1))

 

Investor/Lender Disclosure Statement (Form 1)
[Reg. 188/08, s. 31 & 32]

  • The brokerage must give each lender and /or investor in a mortgage/investment in a mortgage that is not a member of the Designated Class of lenders and investors completed Investors and lenders Disclosure Form.
  • Mortgage transactions with investors and/or lenders that are not a part of the Designated Class are referred to as “private transactions”.
  • For investors/lenders that are not part of the Designated Class, disclosure with respect to the following must be provided
  • Role of the brokerage
  • Material risks of the mortgage/mortgage investment
  • Referral fees
  • Estimates of unknown Information
  • Mortgage Default

Conflict of Interest. Designated Class of Lenders or Investors

 

In some cases, you may end up working with a Private Lender or consortium that belongs to (or should belong to) what the MBLAA Regulations calls a “Designated Class of Lenders or Investors.” The most common conditions you will face under which Private Lenders would be part of this class are as follows:

·         A person or entity who is registered as an adviser or dealer under the Securities Act when the person or entity is acting as a principal or as an agent or trustee for accounts that are fully managed by the person or entity

·         An individual, who, alone or together with his or her spouse, has net assets of at least $5 million and who provides written confirmation of this to the Brokerage

·         An individual who, alone or together with his or her spouse, beneficially owns financial assets (being cash, securities within the meaning of the Securities Act, the cash surrender value of a life insurance contract, a deposit or evidence of a deposit) that have an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 million and who provides written confirmation of this to the Brokerage

·         An individual whose net income before taxes in each of the two most recent years exceeded $200,000 or whose net income before taxes in each of those years combined with that of his or her spouse in each of those years exceeded $300,000, who has a reasonable expectation of exceeding the same net income or combined net income, as the case may be, in the current year and who provides written confirmation of this to the Brokerage (O. Reg. 188/08, s. 2)

·         In these cases, if we have the relevant information on file as outlined above, you do not need to provide a copy of the Ontario Investor Disclosure Form (Form 1) to the Lender for each transaction.

Brokers or agents who deal with private investors must complete government authorized disclosure forms accompanied with the risk tolerance form. While the forms may be completed by an agent, they must be signed by a broker before being forwarded to the investor for review.
In addition to the Investors and Lenders Disclosure Form, the brokerage must give each lender/investor the following:

  • A copy of the mortgage instrument, in the case of an investment in an existing mortgage
  • Documentary evidence of the value of the property (1) A copy of an appraisal of the property, completed within the preceding 12 months, or (2) other documentary evidence of the value of the property, other than an agreement of purchase and sale.
  • If available, a copy of any agreement of purchase and sale entered into in the preceding 12 months.
  • Evidence of the borrower’s ability to meet the mortgage payments
  • A copy of the application for the mortgage and any supporting documents
  • For a new mortgage; evidence of any down payment
  • A copy of any agreement that the lender or investor may be asked to enter into with the brokerage
  • Any other information, in writing, that would be reasonably considered material to a lender or investor’s decision about the mortgage or mortgage investment.

This disclosure and documentation described directly above does not apply if the lender or investor is a member of the Designated Class of lenders and investors.[Reg.188,s.31 (1)-(2)]

Mortgage Previously in Default
If the mortgage has been in default during the past 12 months, the brokerage must disclose to the investor the amount and duration of the default. The brokerage must get written acknowledgement that the investor has received this information. This disclosure and acknowledgement is currently addressed in the Investors and Lenders Disclosure Form.[Reg. 188/08,s.28]

Lender Renewal Form
[Reg. 188/08,s.32]
In cases of mortgage renewals, a brokerage must provide each lender that is not a member of the Designated Class with a completed Renewal Form. This form must be signed by a broker and addresses the same type of disclosures covered in the Investor Disclosure Form.
In addition, the brokerage must provide the lender with the following:

  • If an appraisal was completed over the preceding 12 months, a copy of the appraisal
  • If an agreement of purchase and sale was entered into in the preceding 12 months, a copy of the agreement.
  • Any other information, in writing, that would be reasonably considered material to a lender’s decision about the mortgage renewal.
  • This disclosure and documentation described directly above does not apply if the lender or investor is a member of a Designated Class of lenders and investors [Reg.188,s.31(2)]

Other Documentation
All forms completed by head office with respect to MBLAA 2006 will be completed on authorized government forms at all times. The most current version of all forms must be used.

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