Mortgage brokerages, brokers and agents are required to act with honesty and integrity as a licensing condition. In carrying out their duties, mortgage brokers and agents must comply with all requirements established under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the Act) and its regulations. This section addresses key elements related to mortgage brokerage, broker and agent disclosure obligations.
As the chief compliance officer, the Principal Broker is responsible for the business conduct of the mortgage brokerage itself, and every one of its brokers and agents. FSRA relies on the Principal Broker to ensure compliance under the Act. FSRA may hold the mortgage brokerage and the Principal Broker accountable for the conduct of a broker or agent.
Civil liability is ultimately decided by the court if a claim is made for professional negligence. The courts will consider the specific facts of each case. The Mortgage Brokerage’s errors and omissions insurance policy is designed to provide liability coverage. Like all insurance policies, however, there are limits and exclusions.
What's on this page
- Disclosure basics
- Key disclosure requirements
- Additional factors to consider suggested by industry members
- All disclosures required under the Act and its regulations must be made in writing.
- Disclosures can be provided in paper-based format, or electronically.
- There is no prescribed form for providing disclosures, consents, and/or acknowledgements to borrowers. The disclosure requirements are outlined in O Reg. 188/08: Mortgage Brokerages: Standards of Practice, and O. Reg. 191/08: Cost of Borrowing and Disclosures to Borrowers.
- Disclosures to private lenders, and to each investor in a qualified syndicated mortgage, must be provided using the prescribed Form 1 – Investor/Lender Disclosure Statement for Brokered Transactions.
- Form 1 must be signed by a licensed Broker (not an agent).
- Form 1 concludes with a section on additional required documentation related to disclosures. This includes such things as a copy of the appraisal report or other evidence of property value, and the borrower’s income, employment, credit information or other transaction-related information being supplied to the lender/investor to help them make an informed decision.
- The brokerage must also prepare Form 1.1 – Addendum for Construction and Development Loans if the transaction relates to construction or development loans.
- Disclosures to each investor in a non-qualified syndicated mortgage must be provided using the prescribed Form 3.2 – Disclosure Statement for Investor/Lender in a Non-Qualified Syndicated Mortgage.
- Section 10 of Form 3.2 provides a list of material documents that should be presented, along with the form, to each investor to help them decide about investing or lending.
- Effective November 12, 2019, the brokerage must complete Form 3.2.1 – Supplemental Disclosure for Retail Investor in a High-risk Syndicated Mortgage for each investor (who is not part of the “designated class of investors”) that is considering or investing in a high-risk syndicated mortgage. Refer to section 2 of O. Reg. 188/08 for the designated class qualification criteria.
- Forms 3.2 and 3.2.1 must be signed by a licensed Broker (not an agent).
- Effective July 1, 2021, with the transfer of certain SMIs to the Ontario Securities commission (OSC), Form 3.2, and related Form 3.0 – Information about Investor/Lender in a Non-Qualified Syndicated Mortgage and Form 3.1 – Suitability Assessment for Investor/Lender in a Non-Qualified Syndicated Mortgage are no longer required.
As per O. Reg. 188/08, section 33, disclosures, consents and/or acknowledgements must be:
- Expressed in plain language.
- Clear and concise.
- Presented in a logical manner (written in a way that easily brings the required information to the attention of the borrower, lender or investor, as applicable).
Estimates and assumptions
As per O. Reg. 188/08, section 34, a reasonable estimate may be used for disclosure documentation, assuming it is a reasonable assumption within the context of the transaction. In cases where an estimate and/or assumption form part of the required disclosures, the brokerage must clearly notify the reader of this in writing.
As per O. Reg. 188/08, sections 35 and 36, business day means a day that is not a Saturday or a holiday as defined in section 87 of The Legislation Act, 2006.
- For further clarity, business days are Monday to Friday, unless any of those days are statutory holidays.
Required disclosures must be provided at the earliest opportunity and no later than two (2) business days before the earlier of certain events described in section 35 (for borrowers) and section 36 (for lenders/investors) of O. Reg. 188/08.
If the lender or investor consents in writing, the waiting period can be reduced from two business days to one business day before the above-noted transaction events. This must be done using Form 1.2: Waiver for Reducing the Waiting Period.
Note: As per Ontario Regulation 188/08, s. 36 (3), the timeline and waiting period requirements do not apply if the transaction is a non-qualified syndicated mortgage (NQSMI) when the investor/lender is a permitted client. Effective July 1, 2021, with the transfer of certain SMIs to the OSC, this subsection will be replaced and the requirement removed. For more information on the regulatory framework of NQSMI transactions with permitted clients as of July 1, 2021 please refer to FSRAs Approach Guidance No. MB0041APP.
Disclosure to designated class lenders/investors
For mortgage transactions (except non-qualified syndicated mortgages), if the lender/investor falls under the “designated classes of lenders and investors,” the brokerage is exempt from certain duties and from providing certain disclosures to the private lender or investor. Refer to section 2 of O. Reg. 188/08 for the designated class qualification criteria, and sections 18-36 for mortgage brokerage disclosure requirements.
- The duties and disclosure requirements for borrowers remain the same, even if they qualify to be members of a designated class.
- The duties and disclosure requirements are the same for commercial property lending and residential single-family property lending. Note, however, that O. Reg. 191/08: Cost of Borrowing and Disclosure to Borrowers does not apply to a borrower that is not an actual person (such as a business corporation) or a borrower who enters into a mortgage for business purposes.
Key disclosure requirements
The following section discusses key disclosure requirements (but is not a full representation of every required disclosure) that a brokerage, broker or agent must provide to a borrower or lender/investor. If you are unsure about what information must be disclosed in a transaction or to whom, speak with your Principal Broker.
Required disclosures can generally be grouped into the following themes/categories:
- Representation/role and relationships
- Remuneration, compensation and other fees
- Conflicts of interest
- Material risks
- Cost of borrowing
1. Representation/role and relationships
Mortgage brokerages are required to disclose the nature of their relationships with borrowers and lenders, and the brokerage’s role in a transaction (unless the brokerage itself is the lender). For example, a brokerage must disclose if it is acting as a representative of:
- The lender but not the borrower.
- The borrower but not the lender.
- Both the borrower and the lender and is not giving preference to the interests of either.
Mortgage brokerages must disclose their relationship with lenders, including the number of lenders they have arranged mortgages with during the past fiscal year.
If a mortgage is co-brokered, both mortgage brokerages are responsible for providing the required disclosures and maintaining mortgage files for the required period of time. If agreed upon, these responsibilities can be delegated to one of the mortgage brokers. However, all required disclosures and forms must be maintained by both mortgage brokers.
2. Remuneration, compensation and other fees
Mortgage brokers and agents must ensure the mortgage they recommend is suitable for a client’s needs and circumstances and not which lender will pay them the higher commission. However, if they recommend a product with a higher commission that still meets a borrower’s needs and circumstances, they should disclose it to the client.
Sections 21 and 22 of O. Reg. 188/08 require mortgage brokerages to disclose any fees, remuneration, reward points, incentives and other benefits that are payable by others to a mortgage brokerage, its brokers and agents, or that are payable to others by the brokerage.
Other fee and payment disclosure requirements include:
- Any fees payable to the mortgage brokerage for its services (e.g., brokerage fees) must be disclosed in writing to a borrower and included in the cost of borrowing disclosure and the annual percentage rate (APR).
- In cases where the principal amount of the mortgage is $400,000 or less, a brokerage shall not require a borrower to make, and shall not accept, an advance payment or deposit for services to be rendered or expenses to be incurred. For more details, refer to section 37 of O. Reg. 188/08.
- If a brokerage has paid, or will pay, a fee or other remuneration to another person or entity in relation to a transaction, the identity of the person or entity being paid, the basis for the calculation and/or a description of the nature of the benefit (if non-monetary) must be disclosed.
- A referral fee for a “simple referral” (a referral where only contact information is provided to a potential borrower, lender or investor) may be paid to individuals and businesses who are not licensed as mortgage brokerages. (See sections 1 and 2 of Ontario Regulation 407/07: Exemptions from the Requirements to be Licensed.)
- Simple referrals, as well as referrals that involve more than providing contact information, may be paid to licensed mortgage brokerages that refer mortgage business to other mortgage brokerages. Fees or other remuneration cannot be paid directly to mortgage brokers or agents. They must be paid to the mortgage brokerage and be fully disclosed in writing to the borrower, lender or investor. In addition, both mortgage brokerages are required to provide disclosure of fees in connection with the mortgage.
3. Conflicts of interest
Conflicts of interest arise when the brokerage, broker or agent in a transaction has (or appears to have) an incentive to place their own interests ahead of the interests of the borrower, lender or investor.
In mortgage transactions, real or perceived conflicts of interest often arise due to how brokerages, brokers and agents are compensated for their work, relationships between parties to the transaction, and brokerages, brokers or agents serving multiple roles in the same transaction.
Unsure if your compensation structure, relationships or multiple roles in a transaction result in disclosable conflicts of interest? These scenarios, their identification and their disclosure should be discussed with the Principal Broker. When in doubt, disclose!
Conflicts due to compensation
It is up to a mortgage brokerage to determine who its client is and disclose its role, regardless of which party it receives compensation from. This applies whether it is acting as a representative of the lender but not the borrower, the borrower but not the lender or both the borrower and the lender.
Mortgage brokers and agents must recommend suitable products based on their clients needs and circumstances, not which lender pays the highest commission. If you recommend a product that earns you a higher commission (or other monetary or non-monetary benefit) while still meeting the borrower’s needs and circumstances, you should disclose it to the client.
Conflicts due to relationships
Relationships between parties in a transaction can sometimes lead to actual or perceived conflicts of interest. In addition to requiring the disclosure of a relationship’s existence, as required by section 26 of O. Reg. 188/08, the brokerage must disclose if the relationship poses an actual or perceived conflict of interest.
Examples of relationships which may result in disclosable conflicts of interest:
- The mortgage broker/agent has a family member that works for a lender. If that lender is recommended for the transaction, the relationship and conflict of interest should be disclosed to the borrower.
- The mortgage brokerage shares ownership (e.g., officers/directors, management) with that of the lender recommended for the borrower. This relationship and potential conflict of interest should be disclosed to the borrower.
- The mortgage broker/agent is related to the borrower. This relationship and potential conflict of interest should be disclosed to the lender/investor.
Conflicts due to multiple roles in a transaction
When the brokerage, broker or agent serves multiple roles in a transaction, there is a higher potential for actual or perceived conflicts of interest. Examples include:
- Brokerage is also the lender in the same transaction: If a brokerage is acting as both the brokerage and the lender in a transaction, this potential conflict of interest should be clearly disclosed to the borrower. Clear disclosure of who the brokerage is representing is still required.
- Individual broker/agent is also the lender in the same transaction: If the broker/agent is also personally serving as the lender in the transaction, this potential conflict of interest should be clearly disclosed to the borrower. Clear disclosure of whom the brokerage is representing is still required.
- An example of a co-brokering scenario would be when a broker/agent is licensed under brokerage A and is serving personally as the lender in a transaction. Brokerage A is representing the broker/agent as the lender. The transaction is being co-brokered with brokerage B that is representing the borrower. Since the broker/agent (from brokerage A) is only acting as a lender in the transaction, and not representing the borrower, there is no obligation to disclose that the lender is also the mortgage broker/agent. Nonetheless, it is recommended as a best business practice to disclose this information to the borrower.
- Real estate agent is also the mortgage broker/agent in the same transaction: If you are acting as both the mortgage broker/agent and the real estate agent for a subject property, you must ensure that this does not jeopardize your integrity, independence or competence. Your mortgage brokerage is required to disclose in writing to a borrower whether a mortgage broker/agent will receive payment of an incentive from another person, the nature of the incentive (such as mortgage finder’s fee and real estate commission), and the identity of the person.
- You cannot use any information that is obtained while working as a mortgage agent for any other purpose without the person or entity subject to the information’s written consent. Note that additional disclosure obligations also apply to real estate agents and borrowers under the Trust in Real Estate Services Act, 2002.
50 per cent disclosure rule
In all transactions, the brokerage must disclose to the borrower the number of lenders on whose behalf the brokerage has acted during the previous fiscal year. It must also disclose if the brokerage itself was a lender.
The “50 per cent disclosure rule” is an additional requirement, if requested by the borrower. It highlights for borrowers if more than 50 per cent of new mortgages and renewals arranged by the brokerage in the last fiscal year were directed to the same lender.
What exactly must be disclosed? If a borrower requests the information, the brokerage must disclose:
- Whether the brokerage itself was the lender for more than 50 per cent of the total number of new mortgages and renewals completed during the previous fiscal year
- The name of the lender, if any, with whom the brokerage arranged more than 50 per cent of the total number of new mortgages and renewals during the previous fiscal year
The percentage is based on the total number of new mortgages and renewals (number of deals), not the total dollar amount of those mortgages. The disclosure is only required to be disclosed upon request by the borrower. It is considered a best business practice, however, if the information is disclosed even without a request.
4. Material risks
Section 24 of O. Reg. 188/08 requires mortgage brokerages to ensure that a mortgage, or investment in a mortgage, is suitable for a borrower or lender/investor. If you are uncertain about your obligations, speak to your Principal Broker.
Once a mortgage option is recommended, a brokerage must include in its written disclosures actual and potential material risks of the mortgage to the borrower and lender/investor. The mortgage brokerage is also required to obtain written acknowledgement from each that this disclosure has been provided, as per section 25 of O. Reg. 188/08.
The standard terms and conditions of a mortgage that act as the contract between the lender and the borrower are not sufficient, on their own, as fulsome disclosure of material risks to a borrower.
- For a mortgage brokerage’s disclosure requirements with regards to risk, refer to sections 18 – 36 of O. Reg. 188/08.
- For cost of borrowing risk disclosure requirements, refer to Ontario Regulation 191/08: Cost of Borrowing and Disclosure to Borrowers.
In addition to the duties of a mortgage brokerage when offering a standard mortgage to a borrower, the mortgage brokerage cannot arrange, or enter into, a reverse mortgage with a borrower unless the borrower provides a written statement signed by a lawyer.
The written statement needs to say that the lawyer has provided the borrower independent legal advice about the proposed reverse mortgage. This is in addition to the duty to ensure suitability based on the client’s needs and circumstances and to disclose material risks that apply to the mortgage.
Mortgage brokerages, brokers and agents are responsible for fully understanding the mortgage products they offer to their clients. For more information, see section 29 of O. Reg. 188/08.
The Act does not govern leasing.
If a mortgage broker is engaged in another business, the mortgage brokerage should ensure the other business does not jeopardize the mortgage brokerage’s integrity, independence or competence.
The mortgage brokerage must also not use any information that is obtained while carrying on business for any other purpose without the written consent of the person who is the subject of the information. (See sections 56 and 57 of O. Reg. 188/08.)
Verification of identity
Sections 10 and 11 of O. Reg. 188/08 require that mortgage brokers and agents take reasonable steps to verify the borrower, investor or lender’s identity.
If the brokerage is unable to verify the identity of a party to the transaction, the brokerage must advise the borrower, lender or investor (as appropriate):
- Before submitting the borrower’s mortgage application to the lender or arranging a mortgage renewal agreement with the lender.
- Before the borrower enters into the mortgage agreement, signs a renewal agreement or signs a mortgage instrument.
- Before the trade completion date for the investment in a mortgage.
It is the responsibility of Principal Broker to decide what verification of identity is reasonable.
Credit reporting agencies and other companies offer services to help verify the identities of potential clients found online. Other possibilities include:
- A letter of introduction from a local lawyer.
- Calling the lawyer to confirm the letter.
- Checking the lawyer’s name, address and telephone number with the Law Society of Ontario.
You may also want to conduct reverse telephone and address checks on telephone directory websites to see if the names match the addresses and telephone numbers. Work with your Principal Broker to decide what is reasonable in a particular case.
5. Cost of borrowing
Mortgage brokerages are required to disclose the cost of borrowing as outlined in O Reg. 191/08.
Additional factors to consider suggested by industry members
Mortgage products can expose borrowers, lenders and investors to a number of material risks. The Financial Services Regulatory Authority of Ontario (FSRA) collected examples of those risks from mortgage industry members, along with the type of mortgage product information they believe should be disclosed and assessed.
The following are examples of the factors industry members recommended be considered when assessing the suitability of a mortgage product:
For a borrower:
- The amount they can afford to pay for mortgage payments.
- Whether the mortgage product offers lump-sum repayment options and/or payment increase options that match their repayment goals.
- Whether there are prepayment penalties and how they are calculated.
- The potential penalties and/or fees related to non-sufficient fund (NSF) occurrences, mortgage discharge and administrative fees, including what happens at the time of mortgage renewal.
- The length of the mortgage term, its costs and its charges at the time of renewal.
- If the mortgage product has a variable interest rate, how the interest and/or payment amounts will change according to the prime lending rate and how it could affect payments.
- The borrower's long-term and short-term goals and risk tolerance (and how the recommended product aligns).
- How increasing the length of the mortgage (amortization period) to lower monthly payments will result in a higher amount of interest being paid in the long run.
For a lender/investor:
- The lender’s/investor’s net worth, experience in lending/investing, income, goals and objectives.
- The purpose of the loan.
- Their risk tolerance.
- Their desired rate of return.
- For investors considering pooled mortgage investments (e.g., qualified or non-qualified syndicated mortgages), whether they have the steady monthly cash flow needed to participate in a mortgage investment.
- The property type, location and condition.
- The amount of the down payment and the amount of equity the borrower has in the property.
- If there are any tax arrears on the property that impact equity.
- The creditworthiness of the borrower.
- Whether the borrower can afford to make the mortgage payments based on their income.
- Whether the borrower has (or requires) additional mortgages on the property.
- The type of industry the borrower works in. (If the borrower is a seasonal or contract worker, they may experience job loss or loss of income that may impact their capacity to make payments.)
- The borrower’s stage of life and personal circumstances.
- Whether the individual is a first-time buyer or an experienced mortgage borrower.
- Whether the borrower’s risk tolerance can handle a mortgage that does not have fixed payments. The required instalment payments on some variable-rate mortgages (VRMs) and adjustable-rate mortgages (ARMs), for example, can change based on fluctuation of the prime interest rate.
Conflicts of Interest
The following are examples of potential mortgage brokerage conflicts of interest provided by industry members. Note, some of these examples are governed by specific regulations, e.g., disclosing a brokerage’s roles, relationships with lenders and fees payable by others. See sections 18, 19 and 21 of O. Reg. 188/08.
Personal conflicts of interest
- The lender is a family member of the borrower.
- A mortgage broker/agent is related to the developer on the project (where the developer is different from the borrower).
- A mortgage broker/agent is related to the appraiser.
- A mortgage broker/agent is acting for both the borrower and lender.
- A mortgage brokerage or any of its related parties have, or expect to have, a direct or indirect interest in the subject property.
- A mortgage brokerage or any of its related parties is related to the developer (where the developer is different from the borrower).
- A mortgage brokerage is related to the mortgage administrator
- The mortgage broker/agent is acting as both the intermediary and the lender.
- The mortgage broker/agent or his/her spouse funds the mortgage for the borrower.
- A client is being sent to a lender because they are offering the mortgage broker/agent an incentive, such as travel points or a free trip.
- The mortgage broker/agent is receiving a higher bonus/commission for working with a specific lender during a specific timeframe.
- The principal broker is also a real estate broker who is involved with listing and selling the subject property.
Business conflicts of interest
- The mortgage brokerage/broker/agent is also the lender.
- The mortgage brokerage is receiving a fee from a party involved in the transaction (e.g., commission or gift from the lender/investor).
- A lender is being favoured due to monetary reasons.
- A large portion of the business (over 50 per cent) is being done exclusively with one party.