Mortgage brokers across Ontario came under the regulation of the Financial Services Commission of Ontario (“FSCO”) on July 1, 2008 when Ontario’s Mortgage Brokerages, Lenders and Administrators Act, 2006 came into effect. The new Act and regulations was put into place in order to protect consumers and mortgage professionals within the industry, and to ensure that Ontarians are dealing with fully credentialed, educated, experienced and suitable brokers and agents when they are arranging for a mortgage for their home or property.
Two of the areas that Ontario’s new legislation aims to cover are the issues of disclosing borrowing costs and ensuring the suitability of the mortgage. Now, brokers and agents will be governed by the same cost of borrowing disclosure requirements banks, credit unions and insurance companies are required to give their customers. On whole it is meant to give the person who is shopping for a mortgage full, fair and timely disclosure of all the costs of obtaining and paying his or her mortgage. What no one in the industry wants to see is a borrower relying on an independent mortgage brokers to get them the best deal that is out there, and then having that person turn around after a month or two complaining of hidden costs. The mortgage process should be open and transparent. It’s part of a brokerage’s job to ensure its clients understand the mortgage products it finds for them, and that those products are best suited to their needs and circumstances..
The other big issue the Act and Regulations deal with, therefore, is the issue of ensuring the suitability of a particular mortgage product to the needs of the borrower – or the mortgage lender, or investor, as the case may be. It’s now mandated that a mortgage brokerage has to take “reasonable steps” to ensure that the mortgage or mortgage products it presents to a borrower for the borrower to consider is “suitable” for that person, having regards to that person’s specific “needs and circumstances”. The same holds true for the needs and circumstances of the lender or mortgage investor.
In addition to ensuring the suitability of a mortgage product to the borrower’s individual needs and circumstances, the brokerage must also provide written disclosure of all material risks to the transaction and give the borrower adequate time to consider those risks and the terms of the mortgage itself.
The advance disclosure that mortgage brokers are now required to provide to borrowers includes:
- The principal amount of the mortgage;
- The annual interest rate (or the method of calculating the annual interest rate, if it is a variable-rate mortgage);
- The installment period (monthly, weekly, bi-weekly etc.) and the amount of each monthly installment;
- The amortization period for the mortgage and details regarding any compounding interest that is payable; and,
- The term of the mortgage and the amount that the borrower will owe when the mortgage’s term expires (presuming all payments are made when due, and there are no prepayments made).
To ensure that borrowers get the financial disclosure they require and adequate time to consider the terms and conditions of the mortgage, as well as any material risks, the new Act and regulations mandate a 72 hour “cooling-off” period. The borrower must receive the mandated disclosure a full 72 hours, excluding Sundays and holidays, before he or she is asked to sign a mortgage instrument (or a commitment to enter into a mortgage). This “cooling-off” period can be reduced to 24 hours, provided the borrower receives independent legal advice.
The new Act and regulations fall under the purview of FSCO, which is charged with licensing and regulating mortgage brokers, broker agents and brokerages across the province. FSCO’s website (http://www.fsco.gove.on.ca) provides consumers and mortgage professionals with full information and access to the new Act and regulations, as well as information on the accreditation program and a list of accredited mortgage brokers.