The Mortgage Brokerages, Lenders and Administrators Act, 2006 (Ontario) (the "Current Act") came into effect on July 1, 2008, at which time the Mortgage Brokers Act (Ontario) (the "Previous Act") was repealed. Unlike the Previous Act, which had only one category of registration (mortgage broker), the Current Act has four categories of licences – mortgage brokerage, mortgage administrator, mortgage broker and mortgage agent. The Current Act sets out the eligibility criteria for each of the licensing categories, and rules on the standards of practice for each category of licensee.

1. Triggers for Licensing Requirements and Categories of Licences

Any corporation, partnership or sole proprietorship carrying on the business as a mortgage lender is required to be licensed under the Current Act. In addition, any corporation, partnership or sole proprietorship carrying on the business of dealing in mortgages, trading in mortgages or administering mortgages is required to be licensed.

A mortgage lender is a corporation, partnership or sole proprietorship that lends money in Ontario on the security of real property, or holds itself out as doing so. If a corporation, partnership or sole proprietorship is carrying on the business as a mortgage lender, it must have a brokerage licence.

Dealing in mortgages includes the following activities:

  • Soliciting another person or entity to borrow or lend money on the security of real estate;
  • Providing information about a prospective borrower to a prospective mortgage lender;
  • Assessing a prospective borrower on behalf of a prospective mortgage lender;
  • Negotiating or arranging a mortgage on behalf of another person or entity; or
  • Holding oneself out as doing any of the above.

If a corporation, partnership or sole proprietorship is carrying on the business of dealing in mortgages, it is required to have a brokerage licence. If an individual deals in mortgages for remuneration (whether direct or indirect, as an employee or otherwise), he or she must hold a mortgage broker’s or mortgage agent’s licence.

Trading in mortgages include the following activities:

  • Soliciting another person or entity to buy, sell or exchange mortgages;
  • Buying, selling or exchanging mortgages on behalf of another person or entity;
  • Buying, selling or exchanging mortgages on the person’s or entity’s own behalf; or
  • Holding oneself out as doing any of the above.

If a corporation, partnership or sole proprietorship is carrying on the business of trading in mortgages, it must have a brokerage licence. If an individual trades in mortgages for remuneration (whether direct or indirect, as an employee or otherwise), he or she must hold a mortgage broker’s or mortgage agent’s licence.

Administering mortgages include the following activities:

  • Receiving payments from a borrower under a mortgage on behalf of another person or entity, and remitting the payments to or on behalf of that person or entity;
  • Taking steps, on behalf of another person or entity, to enforce payment by a borrower under a mortgage; or
  • Holding oneself out as doing the above.

If a corporation, partnership or sole proprietorship is carrying on the business of administering mortgages, it must hold a mortgage administrator’s licence.

2. Entities Exempt from Licensing Requirements

Under the Current Act, a financial institution and the directors, officers and employees of a financial institution, when such individuals deal or trade in mortgages on behalf of the financial institution in the ordinary course of their duties, are exempt from the requirement to be licensed. A "financial institution" includes the following:

  • A bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada);
  • A credit union or caisse populaire to which the Credit Unions and Caisses Populaires Act, 1994 (Ontario) applies, including a "league" within the meaning of that Act;
  • An insurer licensed under the Insurance Act (Ontario);
  • A corporation registered under the Loan and Trust Corporations Act (Ontario); or
  • A retail association as defined under the Cooperative Credit Associations Act (Canada).

The following persons, entities and/or activities are also exempt from the requirement to be licensed under the Current Act, despite engaging in activities that would otherwise trigger the requirement to be licensed:

  • "Simple referrals" – the referral of a prospective borrower to a prospective mortgage lender, or vice versa, as long as certain required disclosure has been given, and only certain limited information has been provided to the prospective borrower or the prospective mortgage lender. In the case of referring a prospective borrower to a prospective lender, the written consent of the prospective borrower must have been obtained;
  • Lawyers who engage in dealing, trading or administering mortgages while acting in their professional capacity, in certain circumstances;
  • Trustees in bankruptcy in certain circumstances;
  • Consumer reporting agencies in certain circumstances;
  • Crown agencies in certain circumstances;
  • Dealers registered under the Securities Act (Ontario) in certain circumstances;
  • Collection agencies in certain circumstances; and
  • Real estate brokerages and brokers in limited circumstances.

It is important to note that under the Previous Act, a real estate broker that was registered under the Real Estate and Business Brokers Act, 2002 (Ontario) had been deemed to be registered as a mortgage broker. This exemption from the requirement to be licensed no longer exists under the Current Act, which provides for an exemption from the requirement to be licensed for real estate brokerages and brokers only in very limited circumstances.

3. Requirements for Mortgage Brokerages and Administrators Licences

A mortgage brokerage or administrator may be organized as a corporation, a partnership or a sole proprietorship. The following are certain requirements that must be met before a business is granted a brokerage licence or an administrator licence:

  • For a brokerage or administrator that is in the form of a corporation or partnership, it must have been incorporated or formed in a Canadian jurisdiction;
  • For a sole proprietorship, the sole proprietor must be a resident of Canada;
  • A brokerage must designate a "principal broker" who acts as the chief compliance officer for the brokerage;
  • A brokerage or administrator must have a mailing address in Ontario that is not a post office box and that is suitable to permit service by registered mail; A brokerage or administrator must have errors and omissions insurance covering a minimum of $500,000 in respect of any one occurrence and $1 million in respect of all occurrences in a given year; and
  • An administrator must have a financial guarantee in an amount equal to $25,000.

The restriction on foreign ownership for mortgage brokerages that are organized as corporations in the Previous Act no longer exists under the Current Act.

4. Requirements for Mortgage Broker’s and Mortgage Agent’s Licences

Individuals who, for remuneration, engage in the activities of dealing or trading in mortgages must be licensed as mortgage brokers or mortgage agents. Under the Current Act, a mortgage broker or agent is permitted to deal or trade in mortgages on behalf of only one mortgage brokerage. The following are certain requirements that must be met before a mortgage broker’s or a mortgage agent’s licence is granted:

  • The individual must be 18 years of age or older;
  • The individual must be a Canadian resident;
  • The individual must have a mailing address in Ontario that can receive registered mail;
  • The individual must be authorized by a brokerage to deal or trade in mortgages on its behalf; and
  • The individual must have met the prescribed proficiency requirements.

For an individual applying for an agent’s licence, the individual must have successfully completed an approved education program for mortgage agents within two years before he or she applies for the licence. A list of the approved education programs can be found on the website of the Financial Services Commission of Ontario, at www.fsco.gov.on.ca.

For an individual applying for a broker’s licence, the individual must have successfully completed an approved education program for mortgage agents, and must have been licensed as a mortgage agent for at least 24 of the 36 months immediately before he or she applies for the broker’s licence. Furthermore, the individual must have successfully completed an approved education program and passed the qualifying exam for mortgage brokers within three years before he or she applies for the broker’s licence.

The Current Act provides for the "grandfathering" of mortgage brokers and agents registered under the Previous Act, in that such brokers and agents are not required to meet certain of the proficiency requirements, provided certain conditions are met. To be so grandfathered, an individual must have applied for a licence during the "Advance Application Period", which ended on June 30, 2008.

5. Ongoing Compliance for Licensees

The Current Act includes regulations that set out the standards of practice applicable to mortgage brokerages, administrators, brokers and agents. For brokerages and administrators, the regulations set out rules on areas such as disclosure of fees and other payments, tied selling, establishment of policies and procedures, complaint handling, recordkeeping and handling of trust funds. There are also rules on providing disclosure of the cost of borrowing to borrowers. For brokers and agents, the regulations provide rules on the type of remuneration that a broker or agent is permitted to receive or prohibited from receiving. The regulations also set out reporting obligations for licensees.