Chapter 1: Market Overview Flashcards
Mortgage Agent vs Mortgage Broker
(2)
**Mortgage Agent: **professional who deals or trades in mortgages for a licensed mortgage brokerage, under the supervision of a licensed mortgage broker
**Mortgage Broker: **professional who deals or trades in mortgages for a licensed mortgage brokerage. Responsible for supervising the activities of one or more mortgage agents
- each mortgage brokerage must have one principal broker to ensure that the brokerage, its agents, and brokers comply with appropriate legislation and regulations.
Brokers are able to supervise a group of mortgage agents.
Role of a mortgage agent/broker
(1)
Practicing professional, licensed by FSRA, who assess a borrower’s finanical goals with respect to real estate financing, and, after detailed analysis, provides solution to meet those goals by acting as an intermediary with the appropriate lending source
Types of Actvities of a Mortgage Broker
and other activites (5)
- brokering a new mortgage, collateral mortgage, line of credit, or other type of loan secured by real property through an institutional lender
- brokering the refinancing or switch of an existing mortgage through an institutional lender
- providing mortgage advice and counsel, including about renewal options
- private mortgage
- commercial mortgage
**Other Activities includes: **
Define mortgage
(1)
loan secured by real property
Define Conventional mortgage
(1)
Document that is registered against title of your property. This document highlights all the details of your mortgage including original borrowered amount, term length, amortization period, and interest rate.
Define Collateral mortgage
(4)
Borrow beyond the initial amount needed to gain a property. Borrow up to the total value of the property and sometimes even up to 125% of the value of the property.
- documentation will only name the amount of money available to be borrowed
- used to secure line of credit
promissionary note with a lien on the proeprty for the total amount registered
Define Line of Credit
(1)
Made available to a borrower but not advanced on closing (can be used whenever)
Define Refinance
(1)
Borrower already has an existing mortgage. Process of revising and replacing the term of existing credit agreement
Define Renewal
(1)
Staying with your current lender for another term. Opportunity to negotiate your interest rate and term, and you won’t need to re-apply
Benefit of using a Mortgage Agent
(5)
1.** Choice: **acess to several different types of lenders
2. Licensed specialist: benefit of expert advice
3. Rate: access to special rates by different lenders
4. Solution: assess borrowers situation and make recommedations
5. Free, expert advice: lender pay brokerage a commision, borrower receive free advice
Discounted rate: posted rate - discounted rate = borrowers rate
How does a Mortgage Agent get compensated
Income Potential of a Mortgage Agent (2)
- compensated by lender in a form of a finder’s fee or comission based on number of basis points (BPS - 1% is 100bps) multiplied by the amount of the mortgage
- private lenders have brokerage fees that would be deducted directly from the mortgage proceed
Mortgage agents can be either employees or independent contractors
Brokerage fee: charge when using a private lender
Define Mortgage Proceeds
(1)
Money that is being lent to the borrower
Define MBLAA
(mortgage brokerage, lenders, and administrator act)(1)
Legislation governing the industry
Define Power of Attorney
(1)
Legal document in which a person gives someone else authority to make decisions about their finances
Define Insitutational Mortgage Originator
(1)
Place their client with the lender by who they are employed and therefore do not have access to all the different products available in the market
Define Mortgage Creditor Insurer
(1)
Upon a claim (death), the mortgage loan is paid by a one time lump sum payment to the lender
A Brief History of Ontario Mortgage Industry
(3)
Intorduction of lending in the 1960s. Mortgage lending in Ontario was provided by life insurance companies.
July 5, 2021
- GDS ratio up to 39% and TDS up to 44% for borrowers who have a strong history of managing their payments
- at least one borrower must have a credit score greater than or equal to 600
Define Sub Prime Mortgage
B Lending (1)
Declined by their banks and had to seek financing from private lenders
B20 Stress Test
(1)
Insure that a borrower could afford their mortgage payments if their interest rate increase (+2%)
This means that even though a lender may offer the borrower a much lower rate, the borrower must still qualify at the higher rate.
Difference beteen GDS, TDS, and LTV
GDS (Gross Debt Service), TDS (Total Debt Service), LTV (Loan to Value)
(3)
**GDS: **percentage of monthly household income that covers your housing cost. Must not exceed 39%
TDS: percentage of monthly household income that covers your housing cost and any other debts. Must not exceed 44%
LTV: amount of loan divided by value of property
What entity regulates mortgage brokering in Ontario?
(1)
FSRA
Financial Services Regulatory Authority of Ontario
What legislation governs the activities of mortgage brokering in Ontario?
(1)
MBLAA
The Mortgage brokerages, Lenders and Administrators Act, 2006
What is the difference between a comission and brokerage fee?
(2)
- Comission: paid by the brokerage by a lender
- Brokerage fee: fee charged, typically for a private mortgage. Fees deducted from loan by lawyer and remitted to the brokerage
What is the difference between an independent contractor and employee?
(1)
Independent contractors do not have set schedulees while employees are working for a brokerage
Explain when and why banks began lending in the residential mortgage market?
(1)
In 1954 the Bank Act was changed to allow banks to lend on residential mortgages; however there was a limit to the amount of interest that they could charge. This limit was set at 6%. Unfortunately the market at the time saw interest rates at such a point that it was unprofitable for banks to lend based on that constraint, so the market remained dominated by life insurance companies until that cap was removed. That occurred in 1967 when the Bank Act was once again amended. This amendment removed the 6% cap and virtually overnight the banks became the predominant source of mortgage funds in Ontario.
Today banks account for approximately 61% of all mortgages held in Canada and have a virtual lock on mortgage lending.
Define Sub-Prime mortgage market?
(1)
Borrower who does not qualify for traditional lending products
Which type of lender is predominant lender in the Canada mortgage market?
(1)
- Institutional lenders, specifically banks
What two trade associations currently operate in Ontario?
(3)
- AMIPROS
- CMBA
- MPC
What designations are currently available in Ontario?
(2)
- CMIP
- AMP
