Chapter 5: Regulation and Legislation

Question 1

T/F: As of January 2009, a brokerage must disclose to a borrower if one of its agents will receive a fee from a lender in connection with the mortgage renewal.

Answer 1

True

Question 2

T/F: Borrowers are entitled to the following information, only if they ask: brokerage name and license number.

Answer 2

False - this information must be provided under all circumstances.

Question 3

T/F: It is a good idea for a brokerage to have a complaints process, but this is not required by law.

Answer 3

False - the MBLAA requires that all brokerages have a complaints process.

Question 4

FSRA has the authority to refuse to grant a license to a brokerage if FSRA thinks the name might confuse the public with another existing brokerage.

Answer 4

True

Question 5

A sole proprietorship must establish its eligibility for licensure as a mortgage brokerage whereas a corporation does not.

Answer 5

False - every entity applying for a brokerage license must establish its eligibility.

Question 6

Under certain circumstances, FSRA may suspend a broker’s license without warning.

Answer 6

True

Question 7

No changes may be made to the Regulations without going through the formal process of receiving Royal Assent.

Answer 7

False - the regulations may be amended without going through the process required for bills

Question 8

FSRA is only concerned with one sector, the mortgage brokerage industry.

Answer 8

False - it regulates many other industries like the insurance industry.

Question 9

Standards of Practice are guiding principles that businesses are encouraged to implement.

Answer 9

False - these are principles that a mortgage brokerage is required to implement. Failures to meet the standards of practice are deemed a contravention of the MBLAA and subject the brokerage to fines or other penalties.

Question 10

Regulatory decisions by FSRA are final, based on the powers conferred upon the position.

Answer 10

False - Decisions may be appealed to the Tribunal or civil court.

Question 11

As per the MBLAA, there are currently three different licenses in the mortgage brokerage industry.

Answer 11

False - there are 4 licenses:

brokerage, broker, agent and administrator.

Question 12

FSRA (or its designate) may visit a brokerage within the FSRA registry to examine documents and records.

Answer 12

True

Question 13

The principal broker designation was created by the MBLAA to address compliance issues within the brokerage.

Answer 13

True

Question 14

The role of the brokerage may be defined as “taking steps, on behalf of another person or entity, to enforce payment by a borrower under a mortgage”

Answer 14

False - this is the definition of a mortgage administrator.

Question 15

A mortgage agent may work only for one brokerage whereas a mortgage broker may be employed by several brokerages at the same time.

Answer 15

False - Both an agent and broker must only work for one brokerage at a time.

Question 16

What are the educational requirements to obtain a mortgage agent’s license?

Answer 16

Individuals must take and pass an FSRA approved licensing course such as the REMICs RMAC course.

Question 17

What is/are the difference(s) between a mortgage agent and a mortgage broker?

Answer 17

The difference is that a broker has additional education and has been a licensed agent for at least two years. In addition, a mortgage broker can hold the position of Principal broker and can manage agents.

Question 18

Describe the duties and responsibilities of the principal broker.

Answer 18

This individual is responsible for all aspects of a brokerage’s compliance.

Question 19

What is the difference between an offence under the MBLAA and an administrative penalty?

Answer 19

Administrative penalties are either “general” or “summary” and are covered in detail in Regulation 192/08 sections 1 – 6 while anyone who contravenes any of the sections as listed in section 48 of the MBLAA is considered to be guilty of an offence.

Question 20

List the circumstances in which an individual would be deemed unsuitable to be granted a mortgage broker’s license?

Answer 20

A broker will be deemed unsuitable for a license if:

• the individual’s past conduct affords reasonable grounds for belief that he or she will not deal or trade in mortgage in accordance with the law and with integrity and honesty
• the individual is carrying on activities that contravene or will contravene the MBLAA or its Regulations
• the individual has made a false statement in his or her application for a license

Question 21

Describe the complaints policy that a brokerage must have to comply with the MBLAA and its Regulations

Answer 21

The brokerage must have a complaints process so that if an individual makes a complaint to the brokerage in writing, the brokerage must respond in writing, also indicating that if the complainant believes that if the brokerage has contravened the MBLAA they may refer the complaint to the FSRA.

All complaints must be documented and handled by one or more authorized individuals.

Question 22

What information must be included in every public relations item?

Answer 22

A brokerage must use its authorized name when conducting any business, and as of January 1, 2009, it must prominently include its authorized name and license number in all of its public relations materials.

If the brokerage is a franchise, it must state that it is independently owned and operated.

Question 23

List the items that must be disclosed to a borrower in a disclosure document

Answer 23

The brokerage must inform the borrower, lender or investor, in writing, as to the “material risks of each mortgage or investment in a mortgage that the brokerage presents for the consideration of the borrower, lender or investor,” and obtain written acknowledgment that this disclosure has been made.

Other disclosure obligations include disclosure of the brokerage’s relationships, potential conflicts of interest, mortgages previously in default and of the cost of borrowing, the latter disclosure being very explicit.

Disclosure requirements are discussed in detail in Chapter 18: Borrower Disclosure, What must be disclosed.

Question 24

What amount of errors and omission insurance must a brokerage have to comply with the MBLAA?

Answer 24

Errors and Omissions insurance must be a minimum of $1 million of coverage per year, and a minimum of $500,000 of coverage per occurrence.

It must also include a provision for loss resulting from fraudulent acts.

Question 25

What is the amount of time that records of a mortgage transaction are required to be kept by the brokerage?

Answer 25

A brokerage must retain all records as follows: that relate to a mortgage or mortgage renewal agreement, as the case may be, for at least six years after the expiry of the term of the mortgage or renewal or other expiry of the mortgage transaction all records that relate to a purchase, sale or trade-in a mortgage for at least six years after the trade completion date or other expiry of the transaction O. Reg. 188/08, s. 48 (2) for at least six years all other records that are required by subsection 46 (1) or that the brokerage is otherwise required to create or maintain under the Act. O. Reg. 188/08, s. 48 (3)

Question 26

What types of funds must be deposited into a trust account?

Answer 26

Any funds payable to another party in the transaction or that are a deposit against a broker fee.

Question 27

What information must be provided to a potential private lender before he or she can commit to funding a mortgage?

Answer 27

All information that is necessary to ensure that the proposed mortgage is suitable for the investor having regard to the needs and circumstances of the investor.

Question 28

What titles (i.e, broker, agent, etc.) must / can be used by Brokers and Agents in advertising material?

Answer 28

The MBLAA restricts the use of titles "mortgage brokerage, mortgage broker, mortgage agent, mortgage administrator" and their French equivalents to persons and entities licensed as such under the MBLAA. This prohibition includes using abbreviations such as mtg. broker, or their equivalents in another language. Therefore, if an individual is licensed he or she must use either broker or agent as his or her title (or options mentioned above). Unlicensed individuals cannot use those titles.