Issue:
The Financial and Consumer Services Commission (FCNB) wishes to advise the mortgage broker community that it is seeing an increase in unlicensed activity or activity that is not compliant with New Brunswick mortgage brokering and lending legislation.
Regulatory Requirements:
The FCNB Consumer Affairs Division administers a wide range of consumer legislation, including the Mortgage Brokers Act (MBA) and the Cost of Credit Disclosure and Payday Loans Act (CCDPLA). The MBA imposes standards of practice, minimum educational requirements, and enhanced disclosure obligations on licence holders. The CCDPLA, among other things, protects consumers by ensuring that the true cost of borrowing is accurately disclosed to them.
The MBA sets out a licensing regime for parties who broker or administer mortgages. The CCPLDA requires registration of credit grantors, credit brokers and lessors who are involved in the negotiation of, or the extension of credit or leases, for personal, family or household purposes. In addition to those extending consumer loans and retail credit, the CCPLDA also applies to those extending mortgages, credit card services, leases and lines of credit. Individuals offering credit may require registration if they are ordinarily carrying on the business of extending credit to other individuals for personal, family or household purposes in New Brunswick. More information on registration requirements can be found on our website.
Expectation:
Accessing private lenders (also referred to as alternative lenders or private investors) is becoming increasingly popular among Canadians looking to secure loans to buy, renovate, or refinance a home. With mortgage stress test rules, people who are unable to qualify for a mortgage through traditional lenders are turning to private lenders to obtain credit. Private lenders include mortgage investment entities such as mortgage investment corporations, investors who pool their capital (syndicated mortgages), or individuals lending their own money.
As part of its oversight role, the Consumer Affairs Division regularly conducts reviews of its registrants and licence holders for regulatory compliance with respect to their on-going activities and required disclosures.
During our compliance reviews we have seen multiple instances where a mortgage broker is acting for both the mortgagee and the mortgagor. The MBA requires a mortgage broker to act in the best interest of the borrower. Where there is a private investor involved in the transaction that the brokerage is soliciting, negotiating or arranging with to make an investment in the mortgage or advising about the appropriateness of investing in the mortgage, the brokerage can no longer act in the borrower’s best interest and must therefore ensure that the borrower is represented by another mortgage brokerage1. Simply having an associate or broker from another brokerage discuss the transaction with one of the parties does not meet the best interest requirement; nor can the borrower or private investor opt out or consent to having the brokerage represent both sides.
Furthermore, we have seen the following types of activities which call into question whether the mortgage broker is acting in the client mortgagor’s best interest and has determined the most suitable mortgage for them:
- Unfair and onerous loan terms, extremely high interest rates, high fees, and loan flipping
- The majority of mortgages being placed with the same private lender. In some cases, brokers appear to have “favorite” private lenders to whom they steer their business
- A high number of client defaults and foreclosures
- Mortgage amounts which exceed the property value
- The use of aggressive tactics and/or deception to pressure borrowers to take out loans they cannot afford
Additionally, we have seen loans offered by private lenders who are not registered as credit grantors pursuant to subsection 6(1) of the CCDPLA.
Going forward, we will continue to closely monitor the extent of private lending in New Brunswick, including conducting compliance reviews on mortgage brokers to determine the extent to which mortgage brokers are compliant with the legislation. In some cases, it may be necessary to take enforcement proceedings or other regulatory actions where mortgage brokers are acting contrary to mortgage broker legislation as discussed above. FCNB encourages mortgage brokers and associates to contact them with any questions regarding the statutory requirements of the Mortgage Brokers Act, the Cost of Credit Disclosure and Payday Loans Act, or any of the other statutes within its mandate.
Contact:
Financial and Consumer Services Commission
Consumer Affairs Division
200-225 King Street, Fredericton
866-933-2222
info@fcnb.ca
1 See Consumer Affairs Bulletin 2020-01 Mortgage Brokers – Duty to Act in the Best Interest of your Client