MBRCC remarks at the 2018 National Mortgage Conference
Montreal, Quebec – October 29, 2018
Alaina Nicholson, Chair of the MBRCC, delivered the following remarks:
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Thank you to Tasha for the kind introduction. I am pleased to be here today to represent the members of the Mortgage Broker Regulators’ Council of Canada or MBRCC.
The MBRCC is a national association of provincial mortgage broker regulators from across Canada. While the legislation governing mortgage brokers is unique in each province, the MBRCC provides a forum for regulators to consult on common issues, develop collaborative solutions and work together to support consumer protection.
Historically, when we have had the opportunity to address the MPC National Conference, we have provided an update on our strategic priorities and initiatives. Today we are taking a different approach. As regulators, we share a common consumer protection mandate and this conference offers a unique opportunity to reinforce our expectations concerning the fair treatment of mortgage consumers.
In April 2018, the Canada Mortgage and Housing Corporation, or CMHC, conducted its annual Mortgage Consumer Survey, the largest and most complete survey of its kind in Canada. The survey engaged 4,000 recent mortgage consumers. CMHC began to release results from the survey earlier this month.
While the survey found most consumers had confidence in their home buying and mortgage decisions, more than one-third of home buyers expressed that they had concerns or experienced uncertainty when buying a home.
This is not surprising given that home ownership is one of the largest financial investment decisions Canadians make and it explains why consumers would seek professional advice. The survey revealed that the main reasons respondents had used a mortgage broker included: getting the best rate/deal; the advice/recommendations received; and for convenience/to save time.
Canadian home buyers believe mortgage brokers can rate shop for them and that you are acting exclusively in their best interest. That is how the industry markets itself, and how you market yourself to the public.
Beyond finding the best mortgage at the best rate, mortgage customers are counting on mortgage brokers for sound advice and recommendations. While three-quarters of those who had used a mortgage broker were satisfied with the service they received, the survey also identified consumer expectations that were not met.
Of those using a mortgage broker, respondents indicated that they would have liked more information on interest rates, mortgage and purchase fees, the different types of mortgages and closing costs. Only 50% of home buyers said their mortgage professional discussed unexpected costs. Given that home ownership is one of the largest financial investment decisions Canadians make, these gaps are unsettling.
Knowing your customer is key to assessing their suitability for a mortgage. Consumers need to be advised when they are borrowing beyond their means. The recommendation of the broker should always be the one that best meets their client’s needs.
Your clients expect the disclosures and documents provided to them to be clear and easy to understand. Let's face it—many do not take the time to read the fine print and they will count on you to advise them on the finer details.
As mortgage brokers, you are well positioned to provide professional advice and can play an important role in addressing key consumer concerns including affordability, rising interest rates and mortgage qualification requirements. Canadian consumers are counting on you for sound advice and recommendations.
We know that what consumers expect of pretty much any service they seek out is to be treated fairly. That means that the person they have hired as their trusted advisor should: always put their interests first; give them all the information they need to make a sound, informed decision; respect their borrowing limits, and be a true ally.
Treating customers fairly is simple, but it is not always easy. Over the past decade the industry has navigated unprecedented change—from surging, then softening real estate markets, to changes in lending practices, industry consolidation, FinTech, and global economic uncertainly. The list of disruptive factors goes on.
Today I want to offer you a regulatory compass to navigate that change and find a path forward that places the fair treatment of consumers at the centre of all you do.
Let’s start at the beginning—your mortgage broker licence. All of the brokers in this room are licensed by the regulator in their own province and possibly licensed to conduct brokering activity in other provinces. But what does that licence mean?
As a regulator, what a licence means to me is that you have been assessed for suitability to operate in the industry. Generally, three basic criteria are used to assess whether an individual is suitable for licensing:
1. Proficiency: you have met the applicable education and experience requirements, and any continuing education requirements of the regulator;
2. Integrity: you conduct yourself with integrity and have an honest character; your integrity is assessed through the application process and through compliance reviews;
3. Solvency: an individual that is insolvent or has a history of bankruptcy may not be suitable for a licence.
From your customer’s perspective, a licence means you have the credibility and the knowledge to provide them with quality mortgage advice at a pivotal point in their lives. Fundamentally, once you are licensed, the MBRCC expects that you are ensuring that your advice is serving the best interests of your clients by managing your conflicts of interest. For example, you may have several lenders fighting for your business through a variety of compensation arrangements, special relationships, and partnerships. Consumers are not being treated fairly when your advice is being improperly driven by the compensation you receive on a transaction, or otherwise by a special relationship with the lender.
You may have your own business development interests, which may include diversification into private lending (syndicates, MICs, etc.), deposit financing, real estate, securities, insurance, credit repair, financial planning—to name a few. Consumers are not being treated fairly when they are being offered services that, in the circumstances, might best be provided by other regulated service providers who can offer them the same level of choice and independent advice for their products or services that you can provide on mortgages (for example, an investment or insurance product).
The MBRCC expects that you are providing services as advertised—not misleading your clients. Consumers are not being treated fairly when they assume you are working with dozens of lenders and combing every corner of the mortgage ecosystem when that may not be the case—whether it is because of your lender network or the credit abilities of the borrower. You are treating your clients fairly when they are advised of the number of lenders you have access to.
The MBRCC expects that you are providing information to your clients that is simple, easy to understand, and equips a consumer to make an informed decision. Consumers are not being treated fairly when communications and disclosures are dense, technical, and obscure the implications of decisions, or when this information is not reviewed or explained in plain language to them. Consumers are also not being treated fairly when they are encouraged or persuaded to borrow beyond their reasonable means.
We know industry supports these principles—ensuring they are upheld is in everyone’s best interest as we continue to navigate this complex and ever-changing environment.
Having focused on our expectations for brokers, what can you expect of us?
Under our strategic plan, the MBRCC remains committed to advancing consumer protection. Addressing mortgage fraud also remains a priority; we will be releasing guidance for both industry and consumers next year on how to identify and report suspected mortgage fraud. We encourage and in some provinces require your industry to report suspected fraud to your regulators and nothing erodes the public’s trust more than keeping misconduct “in the family.”
The MBRCC remains committed to building greater consistency across jurisdictions regarding qualification standards and continuing education. Watch for an invitation coming from your provincial regulator to participate in our survey on your preferences and priorities before the end of the year. I hope that you will take that opportunity to share your input.
We are also monitoring some industry developments and how they might impact fair treatment, for example, industry convergence and diversification. We are interested in how consumers are impacted by closer loyalties and ties between brokers and lenders; brokers and real estate agents. And more particularly, how we should regulate a business model where a brokerage may be acting effectively as a sales force for one or two lenders?
We are interested in how consumers are impacted by increased broker involvement in private lending and how brokers manage those conflicts. Likewise, what are the implications for consumers with the increased broker interest and involvement in other regulated fields—securities, insurance, real estate? We are also interested in how compensation models may affect advice to a consumer and how to manage their influence.
Finally, you should expect us to be rigorous in fulfilling our duty to identify and take regulatory action to address unscrupulous actors in our efforts to protect Canadian consumers. As regulators we take consumer protection seriously. We do not tolerate unlicensed activity in the industry. We do not tolerate forgery, fraud, misrepresentation or misleading advertising.
Already this year, there have been over 60 regulatory actions across Canada against mortgage brokers, with fines in some cases exceeding $50,000 and/or brokers being ineligible for a licence for up to ten years.
In conclusion, the MBRCC is monitoring the industry to help provincial regulators respond to industry evolution and bring into alignment the interest of brokers while balancing the interests of Canadian consumers.
Mortgage customers have said that they care about three things: helping them find the best deal, providing advice they can count on and making things easier for them.
We at MBRCC expect you to hold true to the principles of fair treatment and always put your clients first as you continue to navigate this complex and ever-changing environment.
We encourage mortgage brokers to communicate issues of concern to their provincial regulator and take advantage of the supports available. As regulators we prefer that you ask for permission rather than ask for forgiveness. Issues you raise may well be brought to the table at future MBRCC meetings so that provinces can collaborate on developing innovative new solutions to shared problems. You can come to us, and we will continue to reach out to you.
Everyone who works in the sector is responsible for this sector’s reputation and, in turn, everyone benefits when we work collaboratively to preserve and even elevate public perceptions of the many benefits of working with a mortgage broker.
Thank you for your time and attention.