Nova Scotia has new mortgage broker regulations in the works and they look like a win for the province’s homeowners.
In a nutshell, they provide NS borrowers with better disclosure and more assurance that the broker they are dealing with is competent and acting in their best interests.
A few of the proposals may need some rethinking, however. We spoke about those with Mark Coffin, Nova Scotia’s Deputy Register of Credit.
Coffin is the lead man on Nova Scotia’s mortgage broker reform project. He says he’s hopeful the proposed broker regulations will be in place by October.
Among other things, the new regulations are expected to include:
Improved and more detailed written disclosures for consumers
A licensing requirement for all agents operating in the province (individual agents currently don’t need to be licensed in NS if they’re working under a licensed broker), and
Standard educational/training requirements for brokers.
All of this is good law as it raises the bar significantly for brokers in the province.
Canadian Association of Accredited Mortgage Professionals (CAAMP) president Jim Murphy agrees. He told CMT that, “CAAMP supports measures providing rules around mortgage brokering, including licensing, E & O (errors & omissions insurance) and minimum education requirements, most of which do not exist in Nova Scotia.”
But some of the proposed rules need some tweaking. One of those is the potential requirement that brokers show their exact commissions to borrowers. That’s a bit unusual.
Coffin says, “A majority of respondents to our discussion paper” advised that they wanted to see the exact amount of broker compensation disclosed.
Not surprisingly, industry representatives object to that. “Disclosure of exact commission amounts is something that CAAMP has concern with,” Murphy says. “This was an issue in Saskatchewan where the regulation was actually changed due to our hard work.”
Glen Ward, president of the Mortgage Brokers Association of Atlantic Canada, spoke in front of Nova Scotia’s Law of Amendments committee on Wednesday. “I asked the committee not to require brokers to disclose the amount of their commissions,” he said, adding that, “bank mortgage specialists are commission sales people as well and they are not required to disclose.”
Objectively speaking, telling customers your pay appears to serve little purpose in cases where the client is not paying the broker’s commission. (For prime mortgages, lenders typically pay the broker, not the client.) Few other professions require salespeople to broadcast their pay to clients.
Coffin seems to agree. As for disclosing the actual amount of commission, he says: “I’m not sure the rationale is there for it.”
“I don’t think that the public really gave a lot of thought to why they want the transparency. They just thought the extra information would be good…What you absolutely do not want is the unintended consequence of having it as a bargaining tool for the borrower (to use against the broker),” he said.
“In that the borrower doesn’t generally pay the broker’s commission…to me, the more important disclosure would be the few-sentence recommendation as to why (a client) was placed with a lender.”
Explanation of Recommendations
The short “recommendation” statement that Coffin refers to is a terrific idea—one that should probably be adopted in all provinces.
Basically, it requires the broker to explain why he/she chose a particular lender and product for a client. Consumers will then see that reasoning and be required to sign off on it.
The benefit is that brokers will be motivated to consider suitability even further. Moreover, the client will have to explicitly confirm that they’re on board with the broker’s recommendation.
No other province (that we’re aware of) has a similar rule, although Ontario and Saskatchewan do have the concept of “mortgage suitability” in their legislation, says Murphy.
Another positive side effect of these regulations will be broker reciprocity. Under the proposed rules, agents licensed in another province will be able to get registered in Nova Scotia more easily.
There’s just one problem. Currently, brokers need to be a “resident” in Nova Scotia to do business there. Coffin isn’t sure if that rule will be overturned. He says there’s “support for both a residency and a non-residency” requirement.
In this digital age of ours, borrowers should have the benefit of competition from out-of-province brokers, as long as those brokers are duly licensed, competent and understand province-specific mortgage procedures. Interprovincial brokering tears down arbitrary barriers to trade and delivers more competitive mortgage offerings to a province’s homeowners.
Coffin says this issue will be decided in Nova Scotia when the final regulations are drafted.
Coffin will be seeking permission to release Nova Scotia’s regulations in draft form (for comment purposes), before they go live. Apparently, that is not usually done. It seems like a reasonable and constructive request, however, so hopefully the Nova Scotia Minister approves it.
Rob McLister, CMT
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