Module 3.2

Question 1

What are the three mandatory disclosure documents

Answer 1

1. Written consent to access personal information
2. Written service agreement
3. Cost of Credit Disclosure (only required when lender or brokerage charges fees)

Question 2

When must the cost of credit disclosure be presented

Answer 2

at the earliest opportunity, but at least two business days before the signing of any mortgage instrument.

Question 3

the timing for disclosure must be at least two business days before the earliest of the following

Answer 3

the day the borrower makes a payment (other than a disbursement)
the day the borrower enters into a mortgage agreement
the day the borrower incurs any obligation in relation to the mortgage

Question 4

what are a few consequences of not making proper disclosures

Answer 4

If the information in a disclosure document is not complete or correct, the applicant may be entitled to cancel the agreement or to receive statutory damages.

Certain disclosures are legislated under the Fair Trading Act and the Real Estate Act, whereby failure to disclose certain information may result in disciplinary actions against you and restrictions in your ability to continue to practice.

Question 5

Examples of disclosure topics

Answer 5

the nature of the service relationship with the borrower
the nature of the relationship with the lender
the range of lenders whose product is offered
how compensation for the transaction occurs
personal mortgage deals
the nature of other monies or benefits received from the lender and factor that influence other monies or benefits
additional fees payable by the borrower

Question 6

Even if a deal falls through, do you need to keep documents/disclosures?

Answer 6

yes

Question 7

Legal requirements for consent

Answer 7

failure to satisfy a credit-reporting agency could result in the entire brokeraget losing its ability to obtain credit reports - a consequence that could pt the brokerage out of business

Question 8

What information must a consent form have

Answer 8

be in written form (i.e., on paper)
be signed by the applicant to qualify as proof that you (and/or the brokerage) obtained consent
be dated to show that consent was obtained prior to retrieving credit reports
include information that makes the applicant aware of why the personal information is needed, how it will be used, and with whom it will be shared
Include the name and telephone number of whomever will address privacy questions or concerns that the applicant may have (This may be you or someone at your brokerage.)

Question 9

Broad catagories of conflict of interest

Answer 9

• Legal and ethical aspects
• Actual, perceived, or potential
• Relationships, compensations, and fees

Question 10

Definition of legal and ethical aspects as relating to conflicts of interest

Answer 10

“Conflict of interest” means a real or apparent incompatibility between an industry member’s interests and the interests of the client or potential client.

An ethics-based definition of a conflict of interest is “a situation in which a person has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties as . . . a professional.” 1

Question 11

Actual, perceived, or potential

Answer 11

Notice that the implication of these two definitions is that a conflict of interest may be actual (as in the legal definition), perceived (as in the ethical definition), or potential, but that this does not change the fact of a conflict of interest situation.

This is an important distinction: you do not have to have actually done anything to cause a conflict of interest situation; someone needs only to perceive that you have done (or that you could do) something to cause a conflict of interest situation.

The bottom line is that you must be completely honest in all your business dealings and willingly disclose any actual or potential conflicts of interest.

Question 12

what do conflicts of interest generally originate from

Answer 12

the nature of the relationships between an applicant and/or the mortgage brokerage professional and/or the lender

your (the brokerage’s) compensation and whether or not that compensation is payable by the applicant

fees payable by the applicant that are related to taking out a mortgage

Question 13

What situations you must avoid or disclose

Answer 13

• playing both sides
• having outside employment
• having unclear employment relationships
• having family or personal interests in a transaction
• accepting gifts or payments
• being involved in another element of the transaction
• being involved in a personal real estate transaction
• using business advantages to gain personal benefits
• maing or accepting any commission, referral fee, or other payment or remuneration
• Advertising or offering an incentive or inducement to any person
• offering a commitmen with higher rates/restricted prepayment for higher lender compensation
• using client/customer information for personal gain

Question 14

having outside employment

Answer 14

It could be a conflict of interest if you have more than one job, and the interests of one job could affect or conflict with the second job, e.g., working in the daytime as a mortgage associate and in the evenings as a bank teller or as a real estate broker.

Question 15

Having unclear employment relationships

Answer 15

It could be a conflict of interest if the identity of your actual employer is somewhat ambiguous; for example, you work as a mortgage associate within a brokerage but as an employee of a lender because the brokerage is a subsidiary of the lender.

Question 16

Accepting gifts or payments

Answer 16

It could be a conflict of interest if you accept gifts of any kind (including meals, entertainment, alcohol, gift cards, trips, undisclosed kickbacks, commissions, profits, and discounts) from someone (or related to/associated with someone) with whom you are working on a transaction.

Question 17

Being involved in another element of the transaction

Answer 17

It could be a conflict of interest to be involved in any element of the transaction apart from the arrangement of the mortgage, such as also working as the property appraiser or receiving undisclosed compensation for referring the applicant to an insurance provider, mover, real estate professional, etc.

Question 18

Being involved in a personal real estate transaction

Answer 18

It could be a conflict of interest if you are arranging a mortgage for a property in which you have an interest. For example, you jointly own a property with a family member and also plan to refinance the mortgage.

Question 19

Using business advantages to gain personal benefits

Answer 19

It could be a conflict of interest if you use insider industry knowledge or your relationships with other industry professionals to gain some kind of profit or personal benefit.

Question 20

Making or accepting any commission, referral fee, or other payment or remuneration

Answer 20

It could be a conflict of interest to make or accept any commission, fees, or payments other than those on behalf of and/or through the brokerage with which you are registered.

Question 21

Advertising or offering an incentive or inducement to any person

Answer 21

It could be a conflict of interest to advertise or offer incentives or inducements except those that are provided by and on behalf of the brokerage with which you are registered.

Question 22

What are the four mortgage associates and service relationships

Answer 22

• Agent/principal relationship
• intermediary relationships
• fiduciary duty
• duty of care

Question 23

Describe intermediary relationship

Answer 23

In this relationship, your role is to broker or facilitate a transaction between an applicant and a lender, with no particular loyalty to either party. In this scenario, the information you provide to either party is truthful and accurate, but it is fair and impartial. It is not confidential to either party, and it does not benefit either party more than the other. While you are not in an official fiduciary capacity to either party in the transaction, you still owe each party a duty of care, which requires that you act with attention and prudence to ensure that they do not suffer any unreasonable harm or loss.

Question 24

You may represent an applicant

Answer 24

In this relationship, you are the agent, and the applicant is the principal. You have a duty to protect and promote the applicant’s interests at all times, advocate on the applicant’s behalf, provide confidential advice, disclose and explain appropriate options, exercise reasonable care and skill and keep the applicant informed of the progress of their application.

Question 25

You may represent a lender (or lenders)

Answer 25

In this relationship, you may be the agent, and the lender is the principal, in which case you have a duty to protect and promote the lender’s interests at all times, advocate on the lender’s behalf, provide confidential advice, disclose and explain appropriate options, exercise reasonable care and skill and keep the lender informed of the progress of the application.

Question 26

You may be an employee of a lender

Answer 26

In this relationship, your duty of care may be limited because you are an employee. Instead, it is the lender that may have some degree of duty of care to its clients.

Question 27

Customer

Answer 27

The customer is typically the other half of a transaction where you represent the other party to the transaction. There exists a requirement for honesty as well as a duty of care and skill for the party that you do not represent.

Question 28

What is a legal and/or moral obligation to ensure that another party does not suffer unreasonable harm or loss

Answer 28

duty of care

Question 29

a third party acts to facilitate a transaction between two other parties

Answer 29

intermediary relationship

Question 30

a legal obligation to act only for the benefit and interests of another, vulnerable party

Answer 30

fiduciary duty

Question 31

one person is authorized by another to act under the second persons control and on his behalf in relationships with third parties

Answer 31

agent/principal relationships

Question 32

what information must be on a written service agreement

Answer 32

the names of parties
if applicable, the address or legal description of the property affected by the agreement
if applicable, the date on which the agreement will become effective
the duration of the agreement
the services to be provided
the responsibilities of each party
the nature of the relationship
consent for collection, use, and distribution of personal and confidential information
consent for ongoing contact with client
consent for obtaining a credit report
the amount or method of calculating the remuneration or how the brokerage will be compensated
if applicable, the additional fees payable by the buyer
range of lenders
provisions for the termination of the agreement

Question 33

what is a written service agreement

Answer 33

document describing the service relationship between associate and the lender to the borrower

Question 34

In regards to compensation, what are you required to make written disclosures for compensation and fees

Answer 34

the way you (or the brokerage) will be compensated
the nature of any other monies or benefits that you may receive
any factors that may influence the payment of those monies or benefits
any additional fees that are payable by the applicant

Question 35

Do you have to disclose specific monetary amount paid

Answer 35

no

Question 36

what is an efficiency ratio (or conversion ratio)

Answer 36

indicator or metric that describes the percentage of applications that convert to a funded mortgage (the number of deals per 10 applications)

Question 37

Effeciency rate example

Answer 37

if a lenders ratio is 60% out of 10 you submit, six must close. if not the lender may think they are spending to much time on your files and may be cut off if not. If beat the expectation they will reward.

Question 38

What 3 conditions must be met before fees are collected from lender

Answer 38

the lender has issued and the applicant has signed a commitment letter to fund the mortgage
a disclosure document has been presented and explained to and signed by the applicant
the applicant has had at least two business days to review and consider the disclosure document (unless “cooling-off period” has been waived)
Note that commercial mortgages (addressed separately in Module4: Commercial mortgages) are not subject to this conditions.

Question 39

In what situations do the paying of fees from lenders 3 conditions not apply

Answer 39

• when disbursed to third party such as:

such as fees for credit reports, Alberta Registries, courier fees, appraisal services, etc.

Question 40

when is the cost of credit disclosure required

Answer 40

the brokerage charges a fee for service
the lender in the transaction is NOT an individual or corporate entity engaged in the business of making loans secured with mortgages (or whenever a lender requests that you supply this disclosure)

Question 41

Refund of fees

Answer 41

If a fee has been collected you must disclose what will happen if you are NOT successful in getting the mortgage approved. You must disclose one of the following:

Applicant will receive a full refund of the fees paid.
Applicant will NOT receive any refund of the fees paid.
Applicant will receive a refund of $(specify).
Not applicable in this case.

Question 42

what is a material risk

Answer 42

one that has consequences for ones bodily comfor or well-being. (something that may have great consequences for ones personal situation)

Question 43

what are the main 5 areas related to material risk disclosures

Answer 43

risks that may not be immediately apparent to an applicant
potential effects of changes in the applicant’s lifestyle, financial situation, and life events on his or her income, assets, and investments
consequences of not meeting mortgage obligations
actual cost of borrowing (cost of credit)
ways to mitigate (reduce) the material risks associated with a large mortgage loan

Question 44

Some reasons that may not be immediately apparent

Answer 44

• house poor
• purchase price is not the total cost of owning a home
• mortgage payments might increase
• mortgage agreement may not be renewable at maturity
• significant penalties
• changes in econmic climate may affect value
• condo purchases have special risks

Question 45

Ways to reduce material risks

Answer 45

• Mortgage life insurance
• Owner title insurance
• ## Independent legal advise

Question 46

What must be included on cost of credit disclosure

Answer 46

all of the costs incurred during the arrangement of the mortgage (referred to as the total cost of credit or TCC)
the interest rate that the applicant will pay after the total cost of credit is factored into the loan amount(referred to as the annual percentage rate or APR)

Question 47

What are some of the final disclosures

Answer 47

• review mortgage transaction process with the applicant
• inform the applicant of what further documentation is likely to be required by the lender before you can submit a mortgage application

Question 48

6 basis steps in mortgage transaction process

Answer 48

Discover the applicant’s story
Educate the applicant and make disclosures
Perform affordability calculations
Gather and verify documents
Evaluate the creditworthiness of the applicant
Evaluate the property quality
review the market for a suitable lender and product
prepare and submit a full loan application. It is strongly encouraged to package your application fully as this will help your underwriter clearly understand the application.
close the transaction
market to attract (or retain) clients