Protecting and Modernizing Ontario’s Mortgage
Broker Industry
We were encouraged by
many of the suggestions
that the Ministry of
Finance (“MoF”)
proposed in their Septem-
ber review of the Mortgage Brokers
Lenders and Administrators’ Act
(“MBLAA”). We concur that there needs to
be a focus on pragmatic regulatory reduc-
tion that balances investor protection with
business efficiencies. We also agree that the
current standards and practices of capital
raising activities for syndicate mortgages
require additional protocols. Subsequently,
many of the proposals outlined in this letter
either mirror or extrapolate on the MoF’s
legislative review of the MBLAA. Of note we
want to highlight the following:
1) The need for a new class of licence for
syndicate mortgage lending;
2) Elimination of unnecessary duplication
and creating harmonization between the
capital raising regimes overseen by the
Financial Services Regulatory Authority of
Ontario (“FSRA”) and the Ontario Securities Commission (“OSC”); and
3) Tailoring regulation to account for the
sophistication of the participants.
Licensing
The mortgage lending landscape in Canada
has changed over the last 10 years and
alternative mortgage lenders are playing a
more important role in assisting homeown-
ers in their financial needs. Alternative
mortgages (aka private mortgages) provide
the Ontario population with much needed
mortgage products to fill the gap not met
by institutional lenders. New immigrants,
entrepreneurs, and self-employed Ontar-
ians have been able to purchase homes and
inject capital in their business because of
alternative mortgages. Furthermore,
alternative mortgages provide a stepping-
stone towards institutional lenders who
ultimately provide longer term debt
options at lower costs.
Alternative mortgages also play an integral
roll in real estate development projects.
Although a few bad actors took advantage
of investors by registering subordinated
mortgage charges against real estate
developments that were marketed as debt
but really were, in all but name, equity or
equity-like investments. The majority of
development projects involving alternative
mortgages have resulted in Ontario’s
builders having access to capital and, when
marketed correctly, have also provided
investors with real estate investment
exposure without taking equity risk.
Given the importance of alternative
mortgages, it is essential that they are
regulated in a manner which doesn’t
impede the flexibility of the product.
Oversight should not focus on the product
features. Rather, it should be focused on
the participants who arrange and invest in
alternative mortgages to ensure that
investors and borrowers are entering into a
product that is suitable.
To address this and better regulate that
segment of the industry, a separate
regulatory category should be created for
mortgage syndicators, MICs and Mortgage
Funds (collectively, “Alternative Lenders”)
who engage in mortgage lending as
opposed to brokering activities. Traditional
mortgage brokers solicit loans and present
them to various funding sources.
Whereas Alternative Mortgage Lenders
source, underwrite and then fund loans
either from captive pools (funds) or via
syndication to a group of suitable investors.
There is a notable distinction between each
group’s activities, and it is often the case
that a registrant focuses either on mortgage brokering or mortgage lending. By
creating regulations that bifurcate the two
activities we can ensure that:
• Instances of duplicative or
non-applicable regulatory burden and
costs are minimized;
• Education and proficiency requirements
are be targeted and effective; and
• An enhanced investor protection regime
can be created.
Currently, there are numerous instances of
irrelevant and/or duplicate costs being
imposed on Alternative Mortgage Lenders.
One example is the requirement for Errors
& Omissions insurance. These policies are
costly and do not cover events and risks
that are relevant to Alternative Mortgage
Lenders. Moreover, these are regulatory
costs that offer no corresponding benefit or
protection to investors. A more meaningful
W
PCMA COMMENT LETTER
The Private Capital Markets Association of Canada (“PCMA”) is pleased to provide our comments and
recommendations on the legislative review of the Mortgage Brokerages, Lenders and Administrators Act,
2006 (MBLAA). Our hopes are that we can prudently streamline the legislation to reduce regulatory
burden on mortgage brokers, agents, lenders, administrators and investors.
