On July 1, 2008, the Mortgage Brokers Act (the "Old Act") was replaced by the new Mortgage Brokerages, Lenders, and Administrators Act, 2006 (the "New Act" or the "Act"). The New Act effectively broadens the scope of the regulatory regime and sets out new licensing requirements for those entities engaged in regulated activities. It is important to determine how the New Act affects you and your business before engaging in any regulated activities.
What Activities are Regulated under the Act?
Do you currently deal in, lend, trade in, or administer a mortgage which is secured against real property in Ontario? If so, you will now be subject to new licensing requirements unless exempted under the Act. Although what is considered "lending" seems simple enough, what it means to be dealing in, trading in, or administering a mortgage in Ontario is more broadly defined.
"Dealing in mortgages" includes soliciting the borrowing or lending of money and/or negotiating or arranging a mortgage on behalf of another person. In addition, attempting to negotiate or arrange a mortgage, or simply providing information about a prospective borrower to a mortgage lender, falls under the category of "dealing in mortgages". "Trading in mortgages" includes the buying, selling, or exchanging of mortgages on behalf of another person or entity, or on behalf of a person’s own entity. Soliciting another person or entity to buy, sell or exchange mortgages is also captured under this definition. Lastly, receiving and remitting payments from a borrower under a mortgage means that you are "administering mortgages" under the Act.
If you or your business are engaged in transactions which involve any of the above-noted activities, you may be required to obtain a licence under the Act.
Who is Exempted under the Act?
As the obligations and penalties associated with licences under the New Act can be quite onerous, it is important to determine whether you or your business, or the activities you are engaged in, are exempt from the licensing requirements of the New Act.
Financial institutions such as banks, credit unions, authorized foreign banks, insurers and loan and trust corporations and certain retail associations, along with their officers, directors and other employees, are exempt from having to hold a mortgage brokerage licence or a mortgage administrator’s licence when they are dealing or trading in mortgages in the ordinary course of their duties and on behalf of their employer. Other mortgage lenders such as private equity investors and pension funds, which are not included in the definition of "financial institution" under the Act, are not exempt.
Certain dealers registered under the Securities Act are also exempt under the Act from having to obtain a brokerage licence so long as the person or entity the dealer is trading with is a permitted person or entity under the Act. In addition, the registered dealer may not hold themself out as otherwise trading in mortgages and must not be otherwise required to be licensed before the exemption will apply.
Examples of exempt transactions would include those between a registered dealer and the Crown in the right of Ontario or any other province or territory of Canada, a financial institution or a corporation that is a subsidiary, or a corporation that is an approved lender under the National Housing Act (Canada). Lawyers are also exempt from the licensing requirements so long as they do not hold themselves out as dealing or trading in mortgages, and are acting in their professional capacity. There are several additional exemptions available.
Which Licence is Right for you?
The New Act requires non-exempt persons or entities to obtain a licence from the Superintendent of Financial Services (the "Superintendent") under one of the four categories listed in the Act.
The Mortgage Brokerage Licence
Unless acting through a registered mortgage broker, those entities that authorize or allow licensed Mortgage Brokers and Mortgage Agents to deal in mortgages on its behalf must obtain a Mortgage Brokerage Licence. All non-exempt entities who do not act through an intermediary and who lend and secure their interest in real property in Ontario are required to obtain this licence.
The licencee under this licence must appoint an individual to act as its "principal broker". This person must be a licensed Mortgage Broker under the Act, and must be authorized by the Mortgage Brokerage to deal or trade mortgages on its behalf. The individual that may be appointed as a principal broker is dependent on the type of entity that the licencee is, such as a corporation, a partnership or a sole proprietorship.
The Mortgage Broker’s Licence
Any individual dealing or trading in mortgages on behalf of a specific mortgage brokerage, or intending to become a principal broker, must obtain a Mortgage Broker’s licence.
The Mortgage Agent’s Licence
An individual who acts under the supervision of a licensed Mortgage Broker on behalf of a specific mortgage brokerage in Ontario and deals or trades in mortgages must obtain this licence.
The Mortgage Administrator’s Licence
This licence authorizes the licencee to administer a mortgage in Ontario subject to the conditions and standards of practice as prescribed in the licence. An entity who receives payment from a borrower under a mortgage on behalf of another person or entity, and remits that payment on behalf of that person or entity, must obtain this licence.
What Does the Licence Application Process Entail?
The process for obtaining a licence is dependent on the type of licence being acquired. The process can be initiated on-line at www.fsco.gov.on.ca. We can assist in ensuring that the eligibility requirements of the particular licence are met, the application forms are fully completed, and the appropriate fee is submitted.
What is the Application of the New Act to Vendor Take-Back Mortgages ("VTB’s")?
VTB’s will now fall within the scope of the Act. There is a limited exemption in Regulation 407/07 from the requirement to have a licence when arranging VTB’s as part of a real estate trade for brokerages, brokers, or salespersons registered with the Real Estate Council of Ontario ("RECO"). Registered brokers and salespersons may deal in VTB’s so long as they do not hold himself or herself out as a person dealing in mortgages and do not engage in other activities requiring a licence. A person who is considering providing a VTB as part of a real estate transaction has several options to ensure that they comply with the Act. The Financial Services Commission of Ontario has advised that the licensing requirements under the Act will not apply to VTB’s in purchase and sale agreements entered into prior to July 1, 2008 and closing after July 1, 2008.
What are the Ongoing Obligations of a Licencee under the Act?
Currently, only mortgage brokerage and administrator licencees have annual reporting obligations under the New Act which require that the licencee file returns with the Superintendent in the prescribed forms at the prescribed times. Furthermore, brokerages and administrators must complete the Investor/Lender Disclosure Statement for Brokered Transactions Form.
As indicated on the Financial Services Commission of Ontario’s website, starting on January 1, 2009 the reporting and disclosure obligations under the New Act will expand to include requirements for all licensed entities and persons.
What are the Consequences for Non-Compliance?
The Financial Services Commission of Ontario can enforce administrative penalties on those persons or entities who do not comply with the New Act. Fines, regulatory measures such as compliance orders or licence revocation, or court-ordered restitution or compensation can all be imposed. Penalties for non-compliance with the reporting obligations of the Act are found in the regulations.