As a mortgage agent or broker, are you confident that your clients are getting the right mortgage and you have the documentation to prove it?
Recently, FSRA reviewed the borrower side of 63 private mortgage transactions and found that agents and brokers are not always appropriately documenting suitability assessments. These practices are inconsistent with the spirit of consumer protection expressed in regulatory requirements.
FSRA observed processes at brokerages which helped agents and brokers collect information which informed suitability assessments. However, these processes did not necessarily help document the rationale for product recommendations. If a process is not documented, licensees cannot demonstrate compliance.
We believe agents and brokers can and must do better.
Our examinations showed that most brokerages have processes in place to assist their brokers/agents in collecting information relevant to a suitability assessment, including:
- mandatory mortgage application completion/record
- completing know your client forms
- discussing consumers’ financial plans
- matching consumers’ data with available products using industry software
- added disclosures and/or initials required next to specific disclosure items
In speaking with agents and brokers, seeing the rationale for recommended products was relatively clearer for borrowers who qualified for mortgages from financial institutions (e.g., banks, credit unions). However, it becomes more difficult to piece together the rationale for transactions involving private mortgages.
FSRA continues to supervise private mortgages. In 2022, we examined specific brokerages and reviewed a sample of 63 mortgage transactions.
O. Reg. 188/08 s. 24 requires brokerages to take reasonable steps to ensure mortgages or mortgage investments presented to clients are suitable.
Records are crucial
Record keeping is required under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA); records also help agents and brokers evaluate a transaction’s compliance. Records include emails, discussion notes, completed forms, documents and so on.
Without records, it is difficult, if not impossible, to re-create suitability assessments and subsequent product recommendations. Moreover, inadequate documentation may lead borrowers to question whether their recommended product meets their needs. Service quality might also come into question once the “pressure to close” is gone. Worse still, borrowers may file complaints or start legal action against their agent or broker for perceived or real inadequacies.
On the other hand, accurate and complete records help improve borrowers’ relationships with their mortgage professionals. Documentation helps agents and brokers demonstrate in a transparent manner why a given product was recommended to a client. Moreover, documentation helps with any insurance and legal proceedings.
For principal brokers (and compliance departments where applicable) the suitability assessment process and rationale documentation provide a base from which to assess a broker/agent’s actions. These documents offer an objective measure for principal brokers to review when taking steps to ensure the compliance of the brokerage’s authorized staff with MBLAA and the brokerage’s policies and procedures. Reviewing the suitability assessment process and rationale provides principal brokers valuable insights into the competence of their brokers and agents and highlights areas that may need further training.
FSRA encourages agents and brokers to effectively document their rationale for recommending products. Apart from collecting relevant information from consumers, licensees must show how that information was used to inform recommendations. Think of it this way: if your principal broker was to review your file, would they be satisfied with your documentation?