FCNB performs regular compliance reviews of licensed brokerages operating in New Brunswick. As a result of these reviews, along with several inquiries received from industry, we are issuing this bulletin to clarify the licensing obligations of brokers and associates involved in co-brokering or referral activity.
When only basic information is provided to a prospective lender or licence holder, such as name and contact details of a prospective borrower, there is no requirement for the person providing the information to be licensed. However, where a referral is made for a benefit (a fee or other remuneration), the amount or nature of the benefit must be disclosed to the borrower before proceeding with the mortgage brokerage services being offered. If the exact amount of the fee is not known, then a reasonable estimate should be provided.
Lead generation or referrals beyond name and contact details would not fall within this exemption; individuals or firms taking mortgage applications or pre-screening possible referrals to mortgage brokerages must be licensed.
As best practice, the disclosure should be made when the mortgage broker provides service to the potential borrower. The total amount of fees, including referral fees, paid by a brokerage must also be disclosed to the borrower at least two days before the mortgage takes effect.
Subject to certain exemptions under the Mortgage Brokers Act, S.N.B. 2014, c.41, and Rule MB-001, individuals and mortgage brokerages must be licensed if they are carrying on business in New Brunswick and engaging in any of the following activities:
- Soliciting another person to obtain a mortgage loan or to make an investment in a mortgage, but only if the soliciting is done on behalf of another person;
- Negotiating or arranging a mortgage loan or an investment in a mortgage on behalf of another person;
- Providing advice to a person with respect to the appropriateness of:
- Obtaining a particular mortgage loan; or
- Making a particular investment in a mortgage.
Individuals or mortgage brokerages should consider several factors in determining whether the type of activity they are conducting falls within the activities set out above, including:
- Directly or indirectly soliciting;
- Promoting, advertising or marketing mortgage brokering services to New Brunswickers.
- Engaging in activities similar to a licence holder, such as taking information that would be contained in a mortgage application;
- Pre-screening possible referrals to mortgage brokerages, such as meeting with borrowers or investors.
- Conducting due diligence to confirm the identity of potential borrowers and to verify the application information provided to lenders.
- Obtaining required consent from clients to perform credit bureau searches.
- Shopping mortgage application to lenders.
- Providing mortgage commitments to borrowers and ensuring that conditions are met.
- Ordering appraisals.
- Preparing disclosure documents and ensuring they are reviewed and executed by required parties.
- Being or expecting to be remunerated or compensated;
- Carrying on the activity with repetition, regularity or continuity;
- Whether the activity is incidental to other activities or part of an individual or firm’s primary business; or
- The connection to New Brunswick (i.e., location of the borrower, private investor or property).
The Director of Consumer Affairs will look at the type of activity conducted and whether it is carried out for a business purpose to determine if an individual must be licensed.
Co-brokering is when an individual arranges to share the responsibility to originate mortgages with someone else. Both individuals in a co-brokering arrangement are equally liable for the mortgage transaction and will share regulatory responsibility for compliance issues. Licence holders should be aware that compliance problems are more likely to occur in co-brokered transactions with unlicensed individuals. The licence holder will likely be the focus of any disciplinary proceedings regarding regulatory compliance issues that arise from a transaction co-brokered with an unlicensed individual.
Any leads for a borrower in New Brunswick are to be pursued by a licence holder in the province. If an individual not licensed in New Brunswick receives a lead for a borrower in New Brunswick, they can refer to someone licensed under the Mortgage Brokers Act. Unlicensed individuals are not permitted to provide any services or advice other than to forward on contact information. Mortgage brokerages that have a lead process for out of province mortgage transactions, sometimes known as a “hub” or “access desk”, must ensure that all activities that constitute mortgage brokering are completed by a licensed individual.