Tribunal decision highlights risks of not meeting regulatory obligations

Mortgage agents and brokers may only deal in mortgages through their authorizing brokerage
Licensed mortgage agents and brokers are only permitted to deal in mortgages through their authorizing brokerage or an exempt entity. This applies to all mortgage transactions, including private mortgages.

• Whether an agent or broker is “dealing in mortgages” depends on the nature of the activities not how they’re described. For example, referring a client to a lawyer does not, on its own, automatically convert mortgage brokering to a simple referral. What matters is the level of involvement. If a mortgage agent/broker continues to play a meaningful role after making the referral (e.g., vetting the borrower, influencing terms, conditions, repayment strategy, etc.), they may still be acting as a mortgage broker and maintain all their obligations, including the requirement for transactions to be submitted through their authorizing brokerage.
• This requirement ensures brokerage oversight, supervision and compliance controls are in place to protect borrowers and maintain professional integrity.

Unlicensed mortgage lenders may not deal directly with borrowers
An unlicensed mortgage lender may only deal in mortgages through a licensed mortgage brokerage or an exempt entity. Unlicensed lenders cannot deal directly with borrowers or rely on agents or brokers who are acting outside their authorizing brokerage.

• Involving a lawyer at closing does not replace licensing requirements or satisfy exemption conditions.
• These restrictions exist to ensure that borrowers receive the protections that come with regulated market participation, including disclosure obligations and mortgage product suitability assessments.

Suitability assessments must include a realistic exit strategy
Mortgage terms such as interest payment reserves and high interest rates can raise significant compliance and consumer protection concerns. Brokerages are expected to complete and document thorough suitability assessments and provide clear disclosure of material risks.

• An exit strategy should be realistic and well understood by the borrower.
• Where the exit strategy depends on selling the property, there should be reasonable assurance that sufficient equity is likely to remain after accounting for fees, costs, interest accrual and changing market conditions.
• If repayment depends on refinancing, brokerages should consider whether the borrower’s circumstances are likely to improve in a way that makes refinancing feasible.
• Exit strategies that rely on overly optimistic assumptions or uncertain future events may signal heightened risk and require closer scrutiny. Where there is no viable exit plan and borrower harm is made inevitable as a result of taking on a mortgage product, brokerages may need to refuse to present the financing to preserve the borrower’s remaining equity.