Summary of stakeholder comments

Support for Guidance

Commenters indicated strong support for FSRA guidance to help mortgage brokers and agents ensure their recommendations for mortgage products are suitable for their clients.

FSRA thanks the commenters for their support.

Potential Conflicts of Interest (COI)

One commenter noted the Guidance does not adequately address the potential COI when a brokerage acts as both a lender and a broker or when a brokerage has a limited range of products to offer clients.

This commenter suggested FSRA impose more stringent requirements and oversight for brokerages that have these types of COI. For example, the Guidance could:

• specify how disclosures of any benefits or incentives received by a broker/agent/brokerage in a mortgage should be verified or enforced
• require the brokerage to obtain independent third-party verification of their recommendations
• prohibit a brokerage from acting as a lender and a broker

The Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) requires brokerages to disclose actual or potential COIs, as well as fees and non-monetary incentives. It also places obligations on the brokerage and its principal broker to ensure that the brokerage and each of its brokers and agents comply with the MBLAA (as per subsections 7(5) and 7(6) of the MBLAA and section 2 of Ontario Regulation (O. Reg.) 410/07 Principal Brokers: Eligibility, Powers and Duties).

FSRA is not proposing changes to COI disclosure requirements, or prohibition for a brokerage to act as both lender and broker at this time.

The current MBLAA legal framework requires lenders who lend directly to consumers to be licensed as a brokerage, so such a prohibition would be inconsistent with the legal framework.

Outcome #2 in the Guidance states, “In cases where the brokerage is not the lender, brokers and agents should consider various mortgage options and not automatically funnel all borrowers to a single lender.” Requiring a rationale for the recommendation helps ensure brokers and agents have considered the available products. Outcome #2 describes the indicators that FSRA considers when determining if a brokerage appropriately assessed product suitability and can articulate the rationale for why a mortgage product was suitable for the client.

The MBLAA requires that a brokerage disclose in writing the nature of its relationship with each lender under a mortgage that it presents to a borrower, including whether the brokerage itself is a lender under the mortgage. See Ontario Regulation (O. Reg.) 188/08 Standards of Practice: Mortgage Brokerages:

• s. 26 Disclosure of brokerage’s relationships
• s. 27 Disclosure of conflicts of interest or potential conflicts of interest

A brokerage must also disclose fees payable to it or by it as per O Reg. 188/08:

• s. 21 Fees, etc. payable by others
• s. 22 Fees, etc. payable by the brokerage to others
• s. 23 Fees, etc. receivable by a brokerage for referral

Requirements relating to how brokers and agents can be compensated are set out in O. Reg. 187/08 Mortgage Brokers and Agents: Standards of Practice:

• s. 4 Restriction regarding remuneration
• s. 5 Remuneration, non-monetary incentives
• s. 6 Remuneration, personal corporation

Private Mortgages

One commenter noted the Guidance should better address the risks and challenges associated with private lending, especially for financially vulnerable or unsophisticated borrowers. For example, FSRA could:

• develop robust and tailored guidance on private mortgages and set minimum standards for affordability, disclosure and transparency
• establish a registry or database of private lenders and their products

Another commenter noted that stricter assessment criteria may limit access to mortgage products for borrowers with unique financial situations, particularly at renewal, thereby affecting the market's overall affordability and availability.

A brokerage must take reasonable steps to ensure that any mortgage or investment in a mortgage (including private mortgages) that it presents to a client (borrower, lender or investor) is suitable for the client and disclose in writing to the client the material risks of that mortgage or investment in a mortgage as per sections 24 (duty re suitability) and 25 (disclosure of material risks) of O. Reg. 188/08.

The Guidance, under Outcomes #3 and #4, describes indicators that FSRA considers when determining if a brokerage appropriately assessed product suitability and can articulate the rationale for why a private mortgage was suitable (and affordable) for the client.

FSRA is a principles-based regulator. Rather than prescribing minimum standards for affordability, the Guidance indicates that a brokerage should assess and discuss with the client the sustainability of a mortgage that they are recommending.

To help consumers, including those who may be financially vulnerable, to better understand the risks associated with private mortgages, FSRA implemented a public awareness campaign on Private Mortgages (February to March 2023 and December 14, 2023 to March 31, 2024). There is also a What you need to know about private mortgage section on FSRA’s website.

Consideration of a registry or database of private lenders and their products is outside the scope of this Guidance. FSRA analyzes various sources of data, including Teranet’s Lendview^TM land registry data, to better understand private lending in Ontario.

The Guidance does not impose more stringent criteria for conducting suitability assessments. It clarifies for brokerages, brokers and agents the intended outcomes and how they can be achieved to ensure they provide their clients with suitable recommendations for a mortgage/mortgage investment based on the needs and circumstances of the client.

Principles-based Regulation

One commenter noted the subjective nature of “suitability” assessments may result in inconsistent consumer protection outcomes and challenges with enforcing and monitoring these assessments, leading to compliance gaps, undermining the effectiveness of the intended protections

The principles-based Guidance outlines the consumer protection outcomes for suitability assessments and includes a non-exhaustive list of key indicators FSRA considers when determining if a brokerage has achieved the outcomes.

FSRA relies on principal brokers to effectively supervise the brokerage and its brokers and agents, to ensure proper suitability assessments are conducted and the outcomes achieved.

When FSRA discovers or receives credible information that shows evidence of misconduct, FSRA reviews the information and takes actions that are within its powers and authority under the MBLAA.

Consumer Empowerment

One commenter noted the guidance should better empower consumers to make informed and independent decisions about their mortgage options and that it does not address issue of consumer education and financial literacy.

The commenter noted FSRA should:

• require brokerages to provide consumers with standardized and user-friendly information and tools such as comparison tables, checklists, or brochures
• collaborate with other stakeholders to develop and deliver consumer educations and financial literacy programs

The Guidance clarifies a brokerage’s duty to ensure the recommendations their brokers and agents provide to a client are suitable for the client. As per the indicators under outcome #4 of the Guidance, brokers and agents should be able to demonstrate they provided communication of their recommendation and ensured the clients understanding of their recommendation.

FSRA is a principles-based regulator. It sets out consumer protection outcomes and indicators of having achieved such outcomes. FSRA does not prescribe a standardized form for conducting mortgage product suitability for borrowers as such a form may not adequately capture the full spectrum of a borrower’s unique needs and circumstances. As per the Guidance, suitability assessments are intended to be proportionate so, not all considerations carry the same weight in all circumstances, e.g., considerations will carry different weight if the borrower is a prime borrower entering into a traditional mortgage versus a sub-prime borrower entering into a private mortgage.  

This guidance includes examples in the appendix that illustrate how to conduct and document a suitability assessment in different circumstances.

For example:

• Suitability Assessment for Borrower that Qualifies for a Mortgage with a Traditional Lender (i.e., Financial Institution)
• Suitability Assessment for Borrower Obtaining a Mortgage from a Private Lender

While consumer education and literacy are out of scope for this guidance, FSRA promotes consumer education/financial literacy through:

• FSRA’s Private Mortgages consumer campaign
• Information on FRSA’s Consumer section of its website (e.g., What you need to know about private mortgage video, Working with a Mortgage Professional, Watch Out for Mortgage Fraud, What could happen if you don’t leave a private mortgage
• Ongoing collaboration with various stakeholders/industry associations and groups (e.g., Collaboration with Credit Canada – Private Mortgages: What You Should Know (February 1, 2024))
• FSRA is open to discussing further opportunities for collaboration with stakeholders to better promote consumer education and financial literacy

Property Appraisal

One commenter recommended the guidance should require brokerages to:

• ensure that an independent third-party appraisal is conducted by an accredited professional
• not use alternative valuation methods such as Automated Valuation Models (AVM)
• revise Form 1 - Investor/Lender Disclosure Statement For Brokered Transactions to use stronger language relating to documentation of property valuation

FSRA has revised the Guidance to state that appraisals should be prepared and signed by an accredited appraiser (e.g., Canadian Residential Appraiser (CRA), Accredited Appraiser Canadian Institute (AACI), Designated Appraiser Residential (DAR), or Designated Appraiser Commercial (DAC)). This revised language is consistent with that in FSRA’s Detecting and Preventing Mortgage Fraud Detecting and Preventing Mortgage Fraud Guidance.

Use of specific methods of valuation for an appraisal is out of scope for this Guidance. As the commenter noted, there may be instances where AVM can be appropriate. If AVM is used, the brokerage should explain why an appraisal by a professional with one of the above stated designations was not used.

FSRA has revised the language in Form 1 to incorporate stronger language relating to documentation of property valuation.

Lender Role/Obligations

Two commenters provided feedback on the role/obligations of lenders:

• should lenders ensure that brokerages provided suitability advice to borrowers
• controlling costs re potential fees/commissions charged/expected by originating brokers involved in renewals
• lenders may not have detailed knowledge of other financing options available to a borrower and the suitability obligation on lenders during loan renewals originated by a third party could instead by met by a written disclaimer recommending the borrower seek advice from a third-party broker.

This Guidance is intended for mortgage brokerages, brokers and agents.  

• FSRA does not place a duty on a lender (that is not a brokerage) to ensure that a third-party intermediary (broker) has fulfilled their obligations. This Guidance is intended for mortgage brokerages, brokers, and agents, because they must be licensed by FSRA, and are the intermediaries between the borrower and lender. Lenders must use a licensed mortgage brokerage or be licensed as a brokerage themselves. Therefore, obligations on the part of the lender that is not also a FSRA-licensed brokerage are out of scope for this guidance.
• Apart from a provision set out in O. Reg. 188/08 s. 37(1), FSRA does not regulate brokerage fees1 (i.e., the amount or circumstances for charging fees). Requirements relating to the disclosure of fees to a borrower and to a borrower and lender/investor for referrals are set out in O. Reg. 188/08 s. 21, 22 and 23.
• Requirements relating to how brokers and agents can be compensated are set out in O. Reg. 187/08 Mortgage Brokers and Agents: Standards of Practice
  • s. 4 Restriction regarding remuneration  
  • s. 5 Remuneration, non-monetary incentives 
  • s. 6 Remuneration, personal corporation

One commenter noted the Guidance should incorporate the timing of when suitability advice must be provided to the client.

The brokerage must conduct its suitability assessment and provide a recommendation to the client before the mortgage closes to ensure the client receives a suitable mortgage or investment based on their unique needs and circumstances (i.e., borrower and/or lender or investor).

FSRA does not prescribe a specific time when suitability advice must be provided. Outcome #4 notes that a mortgage brokerage must explain the rationale of their recommendation to their client, which implicitly requires a suitability assessment be completed before the recommendation can be presented to the client.

Renewals

One commenter noted that where FSRA continues to have any expectations of suitability assessment obligations by the lender at the time of renewal, FSRA should clearly define these expectations including guidance on how to deem suitability upon renewal. For example:

• Consider the “suitability assessment lite” approach at renewal, such that where the borrower has a history of making their payments, the lender can assess the mortgage as suitable.

The requirement for suitability applies equally to mortgage originations and renewals.

Brokerages, brokers and agents must provide the client with a suitable recommendation based on up-to-date borrower and lender/investor information (e.g., client needs and circumstances may be different at renewal than they were at mortgage origination).

Our Guidance has been updated to indicate suitability assessments are required upon renewal.

Other

One commenter asked why FSRA doesn’t prescribe a standardized borrower suitability assessment form.

Another commenter noted that the exclusions for persons entitled to receive suitability advice are narrower than the exclusions for persons entitled to receive lender disclosure, so that licensees may be obligated to provide separate suitability advice without a standardized form to investors/lenders who fall into this gap.

FSRA is a principles-based regulator. It sets out consumer protection outcomes and indicators of having achieved such outcomes. FSRA does not prescribe a standardized form for conducting mortgage product suitability for borrowers as such a form may not adequately capture the full spectrum of a borrower’s unique needs and circumstances. As per the Guidance, suitability assessments are intended to be proportionate as not all considerations carry the same weight in all circumstances. This Guidance includes examples in the appendix that illustrate how to conduct and document a suitability assessment in different circumstances.

For example,

• Suitability Assessment for Borrower that Qualifies for a Mortgage with a Traditional Lender (i.e., Financial Institution)
• Suitability Assessment for Borrower Obtaining a Mortgage from a Private Lender

The exclusion from lender disclosure only applies if the lender is a mortgage brokerage, a financial institution, or a lender in non-qualified syndicated mortgage investments (NQSMI) that is a non-individual Permitted Client as defined in the definitions section of O. Reg. 188/08. The standardized Lender/Investor Disclosure Form, which was updated with questions relating to product suitability, would not be required in these instances of exclusion. However, the lender/investor disclosure form is not the only place or only vehicle for providing these lender/investor clients with the rationale for the recommendation/product suitability assessment.