Module 11: Protecting the Consumer and Increasing Professionalism Flashcards
What is the definition of mortgage fraud?
Mortgage fraud is any material misstatement, misrepresentation or omission made with the intention that it be relied upon with respect to a mortgage loan. Involves deliberate intent
What is the Criminal Intelligence Service Canada (CISC)?
The CISC is responsible for the delivery of criminal intelligence products and services to the national law enforcement community and other stakeholders responsible for public safety.
Layout some of the costs associated with investigating/dealing with mortgage fraud?
-Default Management
-Legal & Foreclosure Costs
-Management costs
-Resale Costs
Exact figures of the losses due to fraud are very hard to come by, due to:
-The many types of mortgage fraud
-The lack of consistent data collection by one agency over time
Financial/material losses are not the only negative consequences of mortgage fraud…
There are also psychological impacts that can come with it.
What are the penalties for committing fraud?
There is no Statute of Limitations for Indictable offences.
Anyone found guilty under section 380 is liable to a term of imprisonment not to exceed 14 years for amounts over $5,000 and not to exceed two years for amounts under $5,000.
What are some fraud related consequences under the Mortgage Regulation Act?
-Licence restriction, suspension or cancellation
-An order for a reprimand
-The payment of administrative penalties of not more than $100K (individuals) and $500K (corporation)
-For an individual a fine (on conviction) not more than $500,000 or imprisonment not more than 1 year or both.
-For a corporation a fine (on conviction) of not more than $1,000,000 for each offence.
-A penalty obliging the person to pay the cost of producing material specified by the Registrar to promote education or knowledge in areas related to mortgage brokering activities
What are some of the common reasons for people committing mortgage fraud?
-Fraud for shelter
-Fraud for profit
-Fraud to further other criminal activities
Define money laundering:
Money laundering is the process of concealing the source of illegally obtained money or attempting to make the money appear legal. Often times money laundering may be done through real estate transactions.
What are the various forms of fraud?
-By an individual
-By a group
-Through Sophisticated/Technical Methods
-With Extensive Pre-Planning
-On a spur of the moment basis
-By the buyer of a property
-By the seller of a property
What are some of the best practices to reduce the risk of mortgage fraud?
-Put good underwriting practices and tools in place
-Deal with the right industry professionals
-Work with people you know and have a history with
-Know where the deal originated
What are some of the initiatives and industry participants looking to prevent fraud?
-FINTRAC: deals with money laundering
-Insurers: offer training on how to detect and report suspected fraud
-MBRCC: education which includes sections on ethics and mortgage fraud
-OSFI: OSFI has specific requirements for mortgage lenders to meet such as verifying borrowers identity
-REDX: allows lenders and other mortgage professionals to perform checks on individuals and companies
What are the 8 categories of minimum standards of care laid out by Mortgage Professionals Canada (MPC)?
- Application Information
- Verification of Identity
- Credit Report
- Equity
- Employment and Income
- Agreement for Purchase and Sale/Property Verification
- Appraisal
- Mortgage Commitments
Mortgage Professionals Canada’s Code of Ethics consists of the following 10 rules:
- Ethical Standards
- Protection
- Disclosure
- Confidentiality
5: Competence - Member Competition
- Co-operation with Mortgage Professionals Canada
- Advertising
- No Discrimination
- Laws and Regulations
What are the two sets of regulations regarding consumer protection laws?
-National: At the national level the Personal Information Protection and Electronic Documents Act (PIPEDA) sets out regulations for private sector organizations that collect and electronically transmit personal information about individuals.
-Provincial: At the provincial level, consumer reporting legislation outlines the kinds of information that a credit agency can report and how this information can be used, and generally protects the consumer from false information. In NS, consumer protection provided by the Mortgage Regulation Act and regulations.
The Personal Information Protection and Electronic Documents Act (PIPEDA) addresses how organizations collect, use and disclose personal information.
It has 10 privacy principles:
- Accountability
- Identifying Purposes
- Consent
- Limiting Collection
- Limiting Use, Disclosure and Retention
- Accuracy
- Safeguards
- Openness
- Individual Access
- Challenging Compliance
What rules must Consumer Reporting Agencies operating in NS follow?
Consumer Reporting Agencies in NS must be licensced and follow rules set out in teh ‘Consumer Reporting Act’. The Act outlines consumer rights in relation to consumer or credit reports.
What is Advertising Standards Canada (ASC) and what issues do they deal with?
ASC is the Canadian industry’s self-regulatory body. Administers the Canadian Code of Advertising Standards.
The types of issues they deal with include:
-Accuracy & Clarity
-Disguised Advertising Techniques
-Price Claims
-Bait and Switch
-Guarantees
-Comparative Advertising
-Testimonials
-Professional or Scientific Claims
-Imitation
-Safety
-Superstition and Fears
-Advertising to Children
-Advertising to Minors
What is the definition of marketing?
Marketing takes place before anything is sold. It can be defined as the planning and execution of a product concept, pricing, promotion and distribution, resulting in exchanges that satisfy the needs of the consumer and the organization.
What are some of the external forces affecting the mortgage industry?
-Economic
-Demographic
-Sociological
-Political and Regulatory
-Competitive
-Technological
What is errors and omissions insurance?
Errors and Omissions insurance provides coverage for mortgage brokerages, mortgage brokers and associate mortgage brokers against claims arising form negligent acts or errors and omissions committed in the performance of services to a third party - the consumer.
Is E&O required for mortgage brokers in NS?
In NS E&O Insurance is mandatory for mortgage lenders, mortgage brokerages and mortgage administrators.
What is an agency relationship?
In an agency relationship, one party (the client or principal) gives consent to a second party, the agent to act on his or her behalf.
What is fiduciary duty?
Fiduciary duty is one of the duties that may arise out of an agency relationship. It refers to the need to be loyal to the client and protect the client’s best interests.
Section 31 of the MRA requires that mortgage brokerages, mortgage brokers and associate mortgage brokers act in the best interests of who?
Borrowers
Under section 33 of the MRA, however, a mortgage brokerage shall act in the best interests of the private investor if the mortgage brokerage:
-Solicits the private investor to make an investment in a mortgage
-Negotiates or arranges an investment in a mortgage by the private investor; or
-Provides advice to the private investor with respect to the appropriateness of making a particular investment in a mortgage
How does the mortgage regulations act define private investors?
-Any person who invests or proposes to invest in a mortgage.
When does an agency relationship begin?
An agency relationship arises when one party, the client or principal, gives consent for a second party, the agent, to act on his or her behalf.
Doesn’t have to be clearly outlined in a formal contract
Can you act as an agent for both the lender and the borrower?
No you are to act in the best interests of the borrower as this is who you have an agency relationship with, not the lender.
What are some of the duties of an agent?
-Carry out proper instructions your client gives you (excluding anything that is illegal)
-Use proper skills
-Use proper care
-Protect your clients best interests (act as a fiduciary)
What is the definition of fiduciary duty?
Fiduciary duty is the best responsibility to protect the client’s best interests.
If you are in an agency relationship there is a high probability that you will have a fiduciary duty to your principal.
What are the key elements that lead to fiduciary duty as outlined by the Supreme Court?
-Trust
-Confidence
-Reliance on Skills and Knowledge
In NS a mortgage brokerage or associate mortgage broker will always have a duty of care
What is involved with fiduciary duty?
-Being loyal or faithful to clients
-Putting client interests ahead of your own and always keeping that priority straight
-That you should not act for a person whose interests conflict with the clients best interests. In other words, it means never compromising the client
-Keeping the client fully informed on all material information you receive, even if you receive information from the other party
-Keeping the clients information confidential
Full disclosure is also an important part of fiduciary duty. What are some things that must be disclosed to your client?
-You must disclose how you are getting paid
-If you have an interest in the transaction, either directly or indirectly you must divulge this.
-Sometimes undisclosed payments for service are called secret profits. Agents have a fiduciary duty to reveal that they are receiving some compensation in order to allow clients to make a fully informed decision as to whether or not they want to enter into an agreement.
Another key duty of a fiduciary is to maintain client confidentiality. This means that the fiduciary cannot:
-Share confidential information with a third party
-Use confidential information for personal gain
-Use confidential information for any other purpose than what it was originally intended for, without obtaining the client’s approval
Besides fiduciary duty what are some other duties that arise from agency?
An agent also has the duty to:
-Follow lawful instructions
-Not use money from criminal activity
-Not advise breach of contract or fraud
What is the duty to act professionally?
- Ensure you have the necessary knowledge
- Ensure your clients are competent to agree
What is the duty of care?
Duty of care is the professional value that best encapsulates what the associate-client relationship is about from the associate mortgage broker’s point of view.
-Know your client (KYC)
-Perform due diligence to meet their needs
What are some of the key points associated with standards of care in the mortgage industry?
-Honesty
-Integrity
-Justice
-Professionalism
-Technical proficiency
-Confidentiality
What should you do if red flags are present in a mortgage transaction?
-Ask for an explanation and obtain documentation for support
-Check additional ID
-Look for signs of tampering
Provide full disclosure to the mortgage lender
