Q&A With FICOM CEO Carolyn Rogers

FICOMWe recently had a chance to run a few questions by Carolyn Rogers, CEO and Superintendent of the Financial Institutions Commission (FICOM), B.C.’s mortgage broker regulator.

Rogers shares her perspective into issues such as the duties of mortgage brokers, reciprocal provincial licensing and areas to be aware of when brokering online.

That discussion follows here:

CMT: As mortgage brokers do more business with customers via the Internet, what issues does this raise from FICOM’s perspective? 

CR: Obviously, the Internet provides an efficient communication channel to the public – over the Internet brokers can broadcast rates, mortgage information and advice and provide online mortgage applications.  However, there are a couple of challenges which the Internet presents:

The use of the Internet increases the likelihood that brokers will have fewer face-to-face meetings. This can result in brokers spending less time advising borrowers about the details of a mortgage commitment or cost of credit disclosure.

It’s helpful for a broker to sit in front of a client and review important documentation with them, highlighting key components of the mortgage transaction such as fees owing, the APR or cost of credit calculation on a disclosure form. Also, the lack of face-to-face interaction can lead to increased instances of title fraud and impersonation if the broker doesn’t eventually meet the borrower to verify who they are dealing with.

In some instances, we have found that mortgage brokers who operate with customers electronically are also geographically distant from the property being mortgaged. They may therefore be unfamiliar with some unique characteristics of the property, which would affect the value of the property and prejudice the lender.

As an example, there was a condominium complex in Vancouver which was well known due to several news articles for being used for marijuana grow operations. Local brokers refused to deal with borrowers looking for financing on these condominiums. However, a geographically distant broker, who relied on the Internet for clients, pursued financing for some of the condominium owners and was unaware of their illegal use and potential condition issues.

The increasing popularity of the Internet has also resulted in a proliferation of unregistered mortgage brokering activity. It is easy for non-compliant operators to create web sites offering mortgage financing to the public. In some cases, these web sites provide few details about the operator and may be set up for the purpose of operating advance fee scams by enticing high risk borrowers to pay an advance fee in return for the promise of financing which never materializes.

Some of the unregistered activity web sites may also provide mortgage applications for the purpose of obtaining financial information to sell to fraudsters for the purposes of identity theft. Some of the mortgage websites can be deceptive in that they appear to be operated by mortgage originators with access to lenders, but in fact they are mortgage lead generators (who are likely not registered) from various parts of the continent or world.

Unbeknownst to the consumer, they will gather borrower application data to sell to third parties, which may include mortgage brokers or lenders. These mortgage brokers will then use the acquired information to solicit the consumer for mortgage business.  Many consumers have complained to our office about this practice leading to us issuing a bulletin explaining that mortgage lead generators are engaging in origination activity which requires mortgage broker registration.

CMT: What is FICOM’s position on reciprocal mortgage agent licensing with other provinces (such as Ontario and Alberta). Does FICOM support this initiative?

CR: At a general level, FICOM supports reciprocity; however, this support has to do primarily with removing labour mobility impediments rather than creating more competition amongst brokers and therefore better pricing to consumers. To our knowledge there is no lack of competition in the mortgage broker industry.

We have been cooperating with our neighbouring provincial regulators, the Real Estate Council of Alberta (RECA), for several years.  There is a page on our web site that explains the requirements for becoming registered in British Columbia by using mortgage broker qualifications from Alberta. There are similar reciprocal provisions for British Columbia mortgage brokers who wish to obtain mortgage broker licensing in Alberta. British Columbia is also party to the New West Partnership and Trade Agreement with Alberta and Saskatchewan, which will require similar cooperation with Saskatchewan by July 1, 2013.  Discussions with the Financial Services Commission of Saskatchewan are expected to commence later this year.

And finally, we also work on a case by case basis with licensed mortgage brokers from Ontario who are licensed with the Financial Services Commission of Ontario and who wish to obtain registration in British Columbia.

CMT: Does FICOM have specific regulations/guidelines that impose a fiduciary duty on B.C. mortgage brokers to recommend the most suitable mortgage product, and attempt to secure the most competitive mortgage rates possible for their customers?

CR: The Mortgage Brokers Act does not contain any specific requirements that require mortgage brokers to recommend the most suitable mortgage product for borrowers and most competitive interest rates. This is not a simple area, as some mortgage brokers are also mortgage lenders and administrators, or they actually represent lenders, including unsophisticated investors.

However, mortgage brokers have an obligation under the Act to provide truthful statements in advertising or other material – so if they claim to find the “best rates for borrowers”, and they do not, then they may be disciplined under the Act for making false statements or engaging in prejudicial conduct.

In addition, under the common law of agency, if a broker has established an agency relationship with a client, they will have a fiduciary duty to find the most suitable product and best rate for the client.

Finally, all conflicts of interest must be clearly disclosed to the client, pursuant to requirements of the Act. Any failure on the broker to disclose conflicts or to act in the best interests of the borrower while acting as a fiduciary may result in disciplinary action by the Registrar.

 


 

Sidebar: For more information on FICOM’s regulation of B.C. mortgage brokers see this link.

 


 

Rob McLister, CMT

  1. I can’t tell you how many times I see someone advertising “best rates.” How can hundreds of brokers all have the best rates when their rates are different??
    Regarding online fraud, I don’t think it is much more prevalent than face to face fraud. A title agent and/or lawyer alway meet with the customer to verify identity. How do you think ING Direct does business?

  2. There should be license reciprocity among all provinces, just like bank employees can sell mortgages in all provinces. Doing a mortgage in Newfoundland isn’t much different than doing one in Alberta. Some provinces have small differences in the closing and legal process, but it takes a day to learn that.

  3. Interestingly enough, I don’t believe that you are required to be licensed in another province to originate a mortgage there. As long as you do it over the phone and don’t physically present yourself in the other province, to the best of my knowledge, there is nothing in any regulations that would prohibit you from mortgaging a property anywhere in Canada from the only province where you are licensed. Some lenders might restrict you, but that’s a different problem.
    However, if you decide to license inter-provincially in BC from an eastern province, be prepared to hit the books hard for more than a few days. My original license to deal in mortgages was under FSCO in Ontario. A few years ago I was graciously “invited” to get licensed inter-provincially in BC by FICOM. The FICOM Mortgage Brokerage Inter-Provincial and BC Procedures Examination is quite comprehensive. Passing it requires a significant investment in time as you will need to develop a detailed understanding of the differences between the Torrens and the Common Law systems among other things.
    That said, the process for getting inter-provincially licensed in BC is very well defined, rigorously managed and set out clearly on the FICOM website. I thought it was quite good actually. Some other provinces need to catch up.

  4. My understanding is that the “sale” is made in the province where the client agrees to do business. For example, if you’re an Alberta broker working with an Ontario client on an Ontario property then you need to be licensed in Ontario.

  5. Jan21, I’m not a lawyer, so this is my unqualified opinion. I cannot see, under any laws, why the location of the property or the client would be relevant. In your example, if you are located and licensed as a mortgage professional in Alberta and you are NOT holding yourself out as doing business in Ontario but you happen to receive an unsolicited mortgage application from an Ontario resident on an Ontario property, I find no reason why you cannot process that deal under Ontario law.
    Ontario’s regulator should have no interest in you because the transaction is governed by Alberta law – simply because that’s where you conduct your business.
    Therefore, as long as the terms of your license under Alberta law do not restrict you from arranging a mortgage for a property in Ontario or talking to a customer in Ontario, you’re good to go!
    Clearly, there is a proficiency issue here, which is why some lenders will only accept mortgage applications where the property and license match up. I’m not up to speed on current lender policies in this regard, but it was hit and miss a few years ago.
    If there are any lawyers out there with an opinion on this, I’d love to hear it. S.

  6. Ontario’s Mortgage Brokerages, Lenders and Administrators Act, 2006 states that people dealing or trading in mortgages in Ontario must be licensed. The Act does not define “in Ontario” but common law holds that people delivering goods or services in a province are deemed to be doing business (dealing) in that province. Hence, Alberta agents would need to be licensed by FSCO to deal in mortgages in Ontario, even if they did not advertise in Ontario.

  7. Hi Diane. Thanks for your response but I’m afraid I need more convincing. Again, I’m not a lawyer, just an interested brokerage owner and engineer seeking clarity.
    Ontario’s MBLA Act, 2006 clearly defines “Dealing in mortgages”. It’s a 133 word definition so I would see no reason to import common law to help interpret it further. If the intent of the statute was to ensure that people who broker mortgages on properties located in Ontario, be licensed in Ontario, then it would state that. But it doesn’t. Similarly, the statute does not require mortgage brokers to license in Ontario in order to deal with an Ontario resident.
    In my view, this is not a loophole or an omission, it must be by design. Too much time, effort and consultation went into this legislation last decade for such obvious omissions from the definition to be accidental in my opinion.
    Therefore my answer to Jan21 stands. If a mortgage agent in Alberta receives an online mortgage application from a friend in Ontario for a property in Ontario, I’m confident that this mortgage could be arranged from the broker’s Alberta office without having to license in Ontario.
    In short, I don’t see how a broker in Alberta could be construed by FSCO to be “Dealing in mortgages in Ontario” under the Ontario MBLA Act simply because they mortgaged an Ontario property or dealt with an Ontario resident or both.
    Sandy

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