The new Mortgage Brokerages, Lenders and Administrators Act (the “New Act”), now in effect, represents the first major overhaul of the Mortgage Brokers Act (the “Old Act”) in about 35 years. The New Act changes the licensing regime and requirements for mortgage agents, brokers, brokerages and administrators who act as mortgage brokers in Ontario.
While changes to the Old Act have been discussed for many years, it is the increase in mortgage fraud cases over the last few years that gave urgency to the new legislation. The provincial government’s goal in introducing this new legislation was not only to reduce mortgage fraud, but also to improve consumer protection, enhance and modernize financial services regulations and encourage greater competition and choice for consumers.
The New Act is much more expansive in its regulatory regime as it has significantly widened the definition of a mortgage brokerage. Under the New Act, one must have a brokerage licence before carrying on the business of dealing or trading in mortgages, mortgage lending or administering mortgages.
Those who may be affected the most by the licensing requirements under the new regime are private lenders. Under the Old Act, private mortgage lending was a completely unregulated market. However, under the New Act, any private lender who is in the business of lending money will no longer be allowed to make mortgage loans unless they obtain a brokerage licence. While many private lenders may view this licensing requirement as a hassle, the hope is that such licensing requirements will better protect the consumer.
The New Act stipulates a number of general and specific exemptions from the licensing requirements. For instance, Section 6 of the New Act provides that financial institutions are exempt from having to be licensed because they are already highly regulated and have substantial consumer protection measures in place. Employees of financial institutions are also exempt from being licensed as mortgage brokers or agents.
Individuals and businesses providing simple referrals will also be exempt from the licensing requirements. There is also an exception from the licensing requirements for lawyers. This does not mean a lawyer can become a mortgage broker without being licensed, but does provide lawyers with the ability to assist a client where they have otherwise been retained to perform legal work.
The New Act also provides exemptions for some other parties as prescribed in the Regulations, including trustees in bankruptcy, directors, officers and employees of crown agencies as well as certain statutory corporations.
The goal of the new licensing regime is to protect lenders and borrowers alike by introducing mandatory controls into the world of mortgages. Hopefully, ensuring that every mortgage agent, broker, brokerage and administrator gets licensed will reduce the instances of fraud in the mortgage industry. However, only time will tell whether the New Act will actually have this desired effect.