FSRA has identified a concerning trend where commitment letters sometimes lack a lender name, or the name is listed as “TBD.” To protect borrowers and investors, mortgage professionals should provide appropriate disclosures about each party’s role in a mortgage transaction or investment. That includes identifying the lender in commitment letters.
Risks of no-name commitment letters
The potential risks and consequences for lenders, investors and borrowers and brokerages may include:
- Agreement will not be in place: Without the lender’s name, a written record of the terms and commitment between the lender and borrower is not created. In addition, the mortgage may not get approved.
- Incomplete suitability assessment: Without a specific lender name at the time of the commitment, an accurate suitability assessment cannot be performed.
- Legal ambiguity: Without the lender’s name, the borrower may encounter difficulty when pursuing legal recourse. The commitment letter may be deemed unenforceable if the lender’s name was not present.
- Inadequate conflict of interest disclosure: The brokerage’s potential relationship with lenders may lead to conflicts of interest and may not be disclosed in a timely manner to the borrowers. In addition, fees and/or incentives may not be disclosed as required.
- Lack of transparency: All parties in a transaction must be aware of each other. Regulated persons and entities must conduct their activities in a truthful, clear and transparent manner[1].
- Inadequate due diligence: Borrowers would not have perspective on the lender and would be unable to perform adequate due diligence.
- Noncompliance: Failing to identify the lender may cause brokerages, brokers and agents to be non-compliant with FSRA’s regulations such as the recent Mortgage Product Suitability Assessment guidance published June 19, 2024 and upcoming anti-money laundering requirements of FINTRAC.
[1] One of the common principles for conduct in the Canadian Mortgage Brokering sector by MBRCC