Textbook Review Answers for the REMIC Mortgage Agent Textbook

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Chapter 1: Market Overview

1. What entity regulates mortgage brokering in Ontario?

• The Financial Services Regulatory Authority of Ontario (FSRA)

2. What legislation governs the activities of mortgage brokering in Ontario?

• The Mortgage brokerages, Lenders and Administrators Act, 2006 (MBLAA) is the principal legislation governing this industry. It is commonly referred to simply as the “MBLAA” or “the Act.”

3. What are the main differences between a mortgage agent and a mortgage broker?

• The main difference is that a mortgage broker can also be the chief compliance officer, known as the principal broker, of a brokerage.
• In addition, a broker is able to supervise a group of mortgage agents.

4. What are the typical activities of a mortgage agent/broker?

1. Brokering a new mortgage, collateral mortgage, line of credit, or other type of loan secured by real property (which is land and whatever is affixed to it)
2. Refinancing of an existing mortgage
3. Arranging investing in a mortgage by one or more individuals
4. Providing mortgage advice and counsel, including about renewal options

5. What is the difference between a commission and brokerage fee?

• A commission is paid to the brokerage by a lender, typically an institutional lender.
• A brokerage fee is a fee charged by the brokerage to the borrower, typically for a private mortgage. The fee is deducted from the loan proceeds by the lawyer and remitted to the brokerage.

6. What is the difference between an independent contractor and employee?

Most mortgage agents are independent contractors, but it depends on the contract. Here are the main differences.

A worker can be classified as an employee if the following characters are present:

• Works exclusively for the payer
• Payer provides tools
• Payer controls duties, whether that control is used or not
• Payer sets working hours
• Worker must perform services
• Provision of pension, group benefits
• Worker is paid vacation pay
• Payer pays expenses
• Paid salary or hourly wage
• Reports to payer’s workplace on regular basis

A worker can be classified as an independent contractor if the following characters are present:

• May work for other payers
• Worker provides tools
• Worker decides how the task is completed
• Sets own working hours
• May hire someone to complete the job
• Not allowed to participate in payers benefit plans
• No vacation pay, and no restrictions on hours of work, or time off
• Worker pays own expenses
• Worker is paid by the job on predetermined basis
• Submits invoice to Payer for payment
• Worker may accept or reject work

7. What are the main benefits of using a mortgage agent?

1. Choice: Mortgage brokerages have access to several different types of lenders, including several chartered banks, credit unions, monoline lenders, mortgage investment corporations, and private lenders. These lenders will be discussed throughout the textbook.
2. Licensed Specialist: A mortgage brokerage specializes in mortgages. An agent must be licensed, educated in mortgages and maintain their licensing on an annual basis. The educational requirements for mortgage agents are far superior to others and means that borrowers will have the benefit of expert advice from a specialist.
3. Rates: Because a mortgage agent has more choice, they have access to rate specials by different lenders at different times, as well as discounts on rates from lenders with whom they do a large volume of business. It’s never possible to determine if any rate is the lowest since lenders are free to offer specific clients special incentives, but generally a brokerage will have access to the most competitive rates available.
4. Solutions: A mortgage agent has a responsibility to assess a borrower’s situation and make recommendations based on their needs and circumstances. Unlike a bank that only has access to its own products, a mortgage agent can recommend products from different lenders that meet the client’s needs.
5. Free, expert advice: Because lenders pay the brokerage a commission, the borrower doesn’t have to pay to get the expert advice they receive from their mortgage agent.

8. List and define the key participants in the Ontario mortgage industry.

• Mortgage brokerage
  • The mortgage brokerage is the licensed mortgage brokering entity. Every mortgage agent must be licensed through and authorized by only one mortgage brokerage. If a licensed mortgage agent stops being authorized by their mortgage brokerage their mortgage agent license will be suspended. For example, if a mortgage agent resigns from a mortgage brokerage her license will be suspended until she is hired by another mortgage brokerage.

• Principal Broker
  • The principal broker is a licensed mortgage broker who is designated by the brokerage to be its chief compliance officer. Under the MBLAA, the brokerage is licensed, and it must have one licensed mortgage broker designated as the principal broker. This person is responsible for activities as outlined in Regulation 410/07, which defines the role of the principal broker. Refer to Chapter 5 for more information on the principal broker.

• Institutional lender
  • The lender is the cornerstone of the mortgage industry. Lenders are generally grouped into two main categories: institutional and private. Institutional lenders represent the majority of lenders in Ontario, but private lenders have always been and will most likely always be a necessary provider of funds for borrowers who don’t qualify through institutional lenders. Institutional lenders consist of banks, credit unions, loan and trust companies, finance companies or other corporations constructed to lend money on real estate. Any lender may also be referred to as the mortgagee.

• Private lender
  • A private lender is typically an individual investor with funds who would like to invest in mortgages. This individual will usually invest through their lawyer who may have clients requiring mortgage financing or a mortgage agent. Their purpose may vary but normally an investor will invest in 2nd mortgages due to their higher rate of return when compared to 1st mortgages and other potential types of investments such as GICs or bonds. Any private lender may also be referred to as the mortgagee.

• Borrower
  • The borrower is called the mortgagor and is the individual or individuals who are taking the mortgage loan and pledging their property as security. In virtually every instance you will be meeting with the borrower(s) directly, however you may encounter circumstances where you are meeting with a borrower acting under a Power of Attorney for the homeowner. This requires significant due diligence on the part of the mortgage agent as these transactions are more susceptible to fraud.

• Institutional Mortgage Originator
  • Several financial institutions now have their own mortgage origination teams, often referred to as Road Warriors, who actively seek borrowers for them. These originators are compensated by their institution and are not considered to be brokering a mortgage transaction since they are using only one lender. The major differentiating factor between an institutional mortgage originator and a mortgage agent is that, while both are dedicated to providing the best solutions to their clients, institutional mortgage originators can only place their clients with the lender by whom they are employed and therefore do not have access to all of the different products available in the market.

• Lender Business Development Manager (BDM) / Business Development Officer (BDO)
  • This individual is employed by the lender and is responsible for generating business from brokerages. This typically includes providing training sessions for groups of agents/brokers, helping agents/brokers with applications that may have been declined, and being a resource for agents/brokers who need assistance with the lender’s products, underwriting guidelines, etc.

• Real Estate Salesperson
  • The real estate salesperson is the individual who brokers the purchase and sale transaction between a vendor (seller) and the purchaser. This individual is employed by a licensed Real Estate Broker, has met licensing guidelines and is a member of a local Real Estate Board. Real estate salespeople are a vital link in the process of purchasing and selling real estate and are therefore of considerable importance to the mortgage agent in regard to obtaining clients. More information on the educational requirements for licensing of real estate salespeople can be found through Humber College at https://humber.ca/realestate/

• Real Estate Appraiser / Real Property Assessor
  • The real estate appraiser, also referred to as a Real Property Assessor also plays a vital role in the real estate process, especially from the standpoint of the mortgage agent. The appraiser determines, in the case of financing, the market value of the property to be mortgaged. Real estate appraisers do not have to be licensed in Ontario, but unless they have a professional designation, no lender will accept their appraisal for financing purposes. There are several methods used to determine the market value of a property, as well as several methods of completing an appraisal. These topics will be covered in the chapter, Application Analysis – The Property.

• Home Inspector
  • Home inspections began as a consumer service in the 1970s and have grown in popularity since then. A qualified home inspector will advise the home purchaser / homeowner in regard to the condition of the home and advise regarding issues surrounding its condition. The condition of the home naturally affects the market value. More information on home inspectors in Ontario can be found through the Ontario Association of Home Inspectors (OAHI) at www.oahi.ca.

• Mortgage Default Insurer
  • The mortgage default insurer provides mortgage default insurance policies to lenders typically offering high ratio mortgages, although default insurance can be provided on a mortgage loan of any loan to value. The main insurers in the Ontario market include the government insurer, the Canada Mortgage and Housing Corporation (CMHC) and the two private insurers, Sagen (formerly known as Genworth Financial Canada) and Canada Guaranty Mortgage Insurance Company (Canada Guaranty).

• Land Surveyor
  • A licensed Ontario Land Surveyor (OLS) is a person who creates a specialized map, referred to as a survey, which is a legal document, of a parcel of land that details boundary locations, building locations, physical features and other important items.

• Lawyer
  • A real estate lawyer is the professional involved in a real estate transaction who performs the following tasks:
  • Negotiating and drafting Agreements of Purchase and Sale
  • Acting for buyers or sellers on new or re-sale home, condominium, or commercial purchases
  • or sales
  • Acting for borrowers or lenders on mortgage transactions, including preparing documents
  • and registering documents

• Mortgage Creditor Insurer
  • A mortgage creditor insurer is an insurer that provides a policy to the mortgage borrower so that upon a claim (in the case of death; there are additional creditor insurance policies available) the mortgage loan is paid by a one-time lump sum payment to the lender. This insurance is specific to the mortgage loan.

• Title Insurer
  • A title insurer is an insurer that provides a policy which provides coverage for the insured’s title. It can compensate the insured for real losses associated with covered issues found in the terms of the policy. For example, if there is an old mortgage on title that was never discharged and this prevents the property from being conveyed to the purchasers, the title insurance policy will take steps to remedy this situation.

• Mortgage Administrator
  • A mortgage administrator is a person or entity that services a mortgage loan on behalf of another. For example, a mortgage administrator may process payments, renewals and discharges, provide correspondence and act to collect mortgage arrears for a lender that has contracted them.

9. What are the key legislative changes that have occurred since 2008?

• July, 2008: Maximum Amortization
  • The maximum amortization was reduced to 35 years from 40 years
• February, 2010: 2 new restrictions
  • Maximum Refinance: Reduced to 90% loan to value from 95%
  • Non-owner-occupied insured mortgages: 20% down payment required
• January, 2011: 2 new restrictions
  • Maximum Amortization: Reduced to 30 years from 35 years
  • Maximum Refinance: Reduced to 85% loan to value from 90%
• June, 2012: 4 new restrictions
  • Stress Test – GDS/TDS: The government changed the maximum GDS to 39% and TDS to 44% for insured mortgages.
  • Maximum Amortization: Reduced to 25 years from 30 years
  • Maximum Refinance: Reduced to 80% loan to value from 85%
  • Maximum Property Value: High ratio insurance limited to properties valued at less than $1 million
• December, 2015: High Ratio Down payments
  • The government increased the minimum down payment for high ratio insured mortgages on homes valued over $500,000 from 5% to 10%.
• October 2, 2016: Foreign Ownership
  • This is not related to default insured mortgages, rather it is a change to the income tax system.
  • An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the capital gains exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.
  • In addition, The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed. The CRA currently does not require this reporting where a property is eligible for the full principal residence exemption. The change means that, when a taxpayer disposes of a principal residence, the taxpayer will be required to provide basic information in the taxpayer’s income tax return for that year in order to claim the exemption.
• October 17, 2016: Stress Test – Interest Rate
  • Borrowers must qualify at the Bank of Canada’s five-year fixed posted mortgage rate. This rate is an average of the posted rates of the big six banks. As of February, 2022, the rate was 5.25, or the rate the lender is offering plus 2%, whichever is higher. This means that even though a lender may offer the borrower a much lower rate, the borrower must still qualify at the higher rate.
• November 30, 2016: Low ratio and portfolio insured mortgages
  • Mortgages insured using low ratio default insurance and portfolio insurance must meet the following criteria:
    1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
    2. A maximum amortization length of 25 years;
    3. A property value below $1,000,000;
    4. For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the established amortization schedule;
    5. A minimum credit score of 600;
    6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
    7. If the property is a single unit, it will be owner-occupied.
• April 21, 2017: Non-Resident Speculation Tax (NRST)
  • The NRST is a 15 per cent tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) and taxable trustees.
• January 1, 2018: Guideline B20 stress test for uninsured mortgages
  • OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
  • Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
  • OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.
  • Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
  • OSFI is placing restrictions on certain lending arrangements that are designed or appear designed to circumvent LTV limits.
  • A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
• July 1, 2020: CMHC changes to qualifying standards
  • Effective July 1, the following changes apply for new applications for homeowner transactional and portfolio mortgage insurance:
  • Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
  • Establish minimum credit score of 680 for at least one borrower; and
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
• July 5, 2021: CMHC returned to its pre-July 2020 underwriting practices for homeowner mortgage loan insurance, specifically:
  • CMHC will consider a Gross Debt Service (GDS) ratio up to 39% and Total Debt Service (TDS) ratio up to 44% for borrowers who have a strong history of managing their payment obligations.
  • At least one borrower (or guarantor) must have a credit score that is greater than or equal to 600 at the time of the request for insurance.
  • As always, CMHC will consider the overall strength of the mortgage loan insurance application, including alternative methods of establishing creditworthiness for borrowers without a credit history.
• March 30, 2022: Non-Resident Speculation Tax (NRST) rate was increased to 20 per cent and expanded provincewide.

10. Explain when and why banks began lending in the residential mortgage market.

• 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.

11. Define the sub-prime mortgage market.

• A market for Borrowers who do not qualify for traditional lending products.

12. What is a stress test?

• A test to ensure a borrower can afford an increase in interest rates. Borrowers must qualify at the Bank of Canada’s five-year fixed posted mortgage rate. This rate is an average of the posted rates of the big six banks. As of February, 2022, the rate was 5.25, or the rate the lender is offering plus 2%, whichever is higher. This means that even though a lender may offer the borrower a much lower rate, the borrower must still qualify at the higher rate.

13. Which type of Lender is the predominant Lender in the Canadian mortgage market?

• Institutional lenders, specifically Banks.

14. What two trade associations currently operate in Ontario?

• AMIPROS, CMBA and MPC.

15. What designations are currently available in Ontario?

• CMIP and AMP.

Chapter 2: Basic Mortgage Concepts

1. Discuss the difference between a mortgage and a car loan.

A mortgage is a loan secured by real property while a car loan is a loan secured by registering a loan against the car under the Personal Property Security Act.The difference is the security.

2. There are two mortgages registered against the title of Barbara’s property. One was registered on May 20, 2006 and the other was registered on March 17, 2005. Which is the 1st mortgage and which is the 2nd?

The mortgage registered on the property on March 17th is classified as a 1st mortgage since it was registered first.

3. Jonathan owns a house valued at $250,000 with a current 1st mortgage that has a balance of $190,000.Jonathan has credit card debts of $12,500 that he wishes to consolidate by increasing his first mortgage. Would Jonathan require a conventional or high ratio mortgage?

The total amount of the new mortgage would be $202,500 ($190,000 + $12,500). By dividing this amount into the property value of $250,000 ($202,500/$250,000) the Loan to Value would equal 81%. Jonathan would be obtaining a high ratio mortgage since this type of mortgage is considered an amount in excess of 80% Loan to Value

4. Name and describe three of the main borrower obligations under a mortgage contract.

Any three off the following:

• Repay the loan
  • The borrower agrees to repay the loan based on the payment schedule outlined in the contract. Failure to do so results in the borrower deemed to be in default or in contravention of the terms of the mortgage contract.
• Insure the property
  • The borrower agrees to keep adequate property insurance on the property to protect the lender from losing their security due to a fire or other covered risks. If the borrower fails to keep insurance on their property, the lender will consider him or her in default.
• Maintain the property
  • The borrower agrees to keep the property in good saleable condition including repairing any portion of the property that requires it. Failure to do so will result in the lender considering the borrower to be in default.
• Not to commit waste
  • Waste is a legal term which includes actions or conduct that could result in damage to the property or a loss of property value. Committing waste will result in the lender considering the borrower to be in default. This may include significant renovations, such as the addition of another storey to the building. This is due to the fact that if the borrower runs out of money during the renovation and it remains incomplete, the value of the property will be diminished.
• Pay property taxes
  • The borrower is required to pay their property taxes on time. If the borrower doesn’t the lender can pay those taxes, add them to the borrower’s mortgage and/or consider the borrower in default. This is because the Municipality can register a lien against the borrower’s property for unpaid taxes. This lien will take precedence over any other mortgages registered on title reducing the lender’s security.
• Follow the terms of the Standard Charge Terms
  • In addition to the covenants listed above, the borrower must abide by any other terms and conditions listed in the Standard Charge Terms.

5. Every mortgage comes with a set of Standard Charge Terms. Discuss the purpose of this document and its importance in the mortgage transaction.

• The Standard Charge Terms is a document that is created by the lender and contains all the terms and conditions regarding borrowing and repaying money when real property is used as collateral.
• This document is the mortgage contract.
• It contains detailed information on the lender’s and borrower’s obligations, referred to as covenants, as well as the remedies available to the lender if the borrower does not meet these obligations

6. When is a bridge loan required?

• Bridge financing, also referred to as interim financing, is used when a person is selling their current home and buying a new one. The issue requiring this type of financing occurs when they are closing on the purchase of their new home before the sale of their current home

7. When is one interest rate equivalent to another?

• Two interest rates are said to be equivalent if, for the same amount borrowed over the same period of time, the same amount is owed at the end of that period.

8. What is the difference between a collateral mortgage and a standard mortgage?

• A charge that is typically registered for an amount and rate higher than what is borrowed, allowing the lender to re-advance or lend additional principal when certain conditions are met without the need to discharge the current mortgage and register a new one.

9. What is the difference between an equity take-out and a refinance?

• An equity take-out (ETO) is typically a new mortgage used to access equity in the property. A refinance, while serving the same purpose, is typically the renegotiation of a current mortgage to meet that goal.

10. What is the difference between a switch and a transfer?

• They are the same thing; when a borrower moves their mortgage to another lender on maturity without increasing the amount borrowed.

11. How much is owing at the end of the amortization?

• Zero dollars. Amortization is the amount of time it takes to pay the entire mortgage off.

12. Describe a construction loan.

• This is a loan to build a structure, such as a residential home, high-rise condominium, etc.

13. Describe compound interest.

• This means that an interest rate is charged more than once per year with the effect of charging interest on interest.

14. Why is a borrower required to maintain property insurance?

• To ensure that the lender’s security is protected

15. Why must a borrower pay their property taxes?

• To ensure that the municipality does not register a lien against the property for unpaid taxes, which would take precedence over any other mortgages registered on title

Chapter 3: Mortgage Repayment Plans and Options

1.What mortgage option allows a borrower to pay off his or her mortgage during the term without a penalty?

• A fully open mortgage option.

2. Discuss the difference between accelerating a mortgage and using the Increased Payment Option to pay the mortgage off more quickly.

• The difference between these two options revolves around how the payment is increased. In an accelerated mortgage the payment is calculated by divided the regular monthly mortgage payment by the required payment frequency and this is typically done prior to closing. Conversely, the Increased Payment Option allows the Borrower to increase his or her payment, in many cases up to 100% of the original payment amount, during the term of the mortgage. Both options offer the Borrower savings over the life of his or her mortgage.

3. Discuss the difference between an open mortgage and a closed mortgage.

• An open mortgage can be repaid at any time while a closed mortgage may only be fully repaid at the end of the term or if the homeowner sells the property.

4. Why might a consumer be confused as to the differences between an Open and Closed Mortgage?

• The terminology used in the mortgage industry regarding these options is not standard. Many lenders refer to an open mortgage with prepayment penalties as a fixed rate mortgage instead of an open mortgage, while others refer to this type of mortgage as a closed mortgage. Consumers and Mortgage agents must be aware of how each Lender describes its prepayment options.

5. Under what circumstances would a Prepayment penalty be charged?

• If the mortgage contract allows full prepayment of the mortgage with either a 3 month interest penalty or the interest rate differential penalty.

6. Describe a scenario under which a 3-month interest penalty would be charged.

• Typically, if the Borrower is prepaying the entire outstanding balance of the mortgage and the current rate charged by the Lender is more than what the Borrower is paying.

7. Describe a scenario under which an interest differential penalty would be charged.

• Typically, if the Borrower is prepaying the entire outstanding balance of the mortgage and the current rate charged by the Lender is less than what the Borrower is paying.

8. What is a bundled mortgage? Name and describe the Lenders that currently offer bundled mortgages in Ontario. This will require you to complete outside investigation.

• A bundled mortgage is a mortgage that combines a line of credit and a standard mortgage. Scotiabank has its STEP mortgage and Manulife also offers a bundled mortgage.

9. What is the most common type of mortgage repayment plan in Ontario today?

• The partially amortized, blended constant payment mortgage with a fixed rate is the most common type of mortgage repayment plan in Ontario.

10. A Borrower has asked you for options regarding repaying his mortgage more quickly. Explain the options available to him and under what circumstances you would advise him to use these options.

• Obtain a fully open mortgage. This will allow the Borrower to repay all or part of his or her mortgage at any time without penalty or notice.
• Accelerate the mortgage. This will save considerable amounts over the life of the mortgage, as long as the Borrower can afford the larger payment.
• Increase the payment. If the Borrower’s cash flow increases he or she may decide to increase the size of the mortgage payment, thereby reducing the amount paid in interest over time.
• Make lump sum payments. If the Borrower can save money during the term he or she can apply this amount directly to the principal. This would be beneficial if the Borrower has paid down other higher interest debt, such as credit cards.

11. What is a vendor take-back?

• A mortgage provided by the vendor to the purchaser of the vendor’s property

12. How do you blend two mortgage rates?

• Blended mortgage rate = (current mortgage/total new mortgage x rate) + (new mortgage/total new mortgage x rate)

13. What is the benefit of an assumable mortgage?

• Lower Rate, If market interest rates are currently higher than the rate of the existing, assumable mortgage, it may be beneficial for the purchaser to assume the current mortgage.

14. What is the benefit of a portable mortgage?

• Rate Protection, If rates are currently higher than the borrower’s contracted interest rate on the mortgage, they can benefit by keeping the lower rate and porting it to the new home

15. What happens to the amount of interest if an amortization is:

a) shortened?

• It decreases

b) extended?

• It increases

Chapter 4: Property Ownership in Ontario

1. What does a homeowner actually own in relation to his or her property?

• The current owner of a piece of real property actually owns rights to use the land, and not the land itself.

2. Describe the term “Fee Simple” and discuss the rights of the fee simple holder.

• The owner of this estate is in control of the real property for as long as he or she has it, subject to paying the property taxes and other municipal obligations and subject to any interests in the property that may be registered against the property’s title. This individual may transfer his or her interest in the property during his or her lifetime or dictate who will inherit the fee simple interest upon his or her death, mortgage the interest, and so on.
• If the fee simple owner dies without a will and there are no heirs, the fee simple interest is terminated and the property will escheat or revert back to the Crown.

3. What makes condominium ownership unique?

• Condominiums combine fee simple ownership of individual units, referred to as strata lots, including all of the rights attached to that ownership, with a combined ownership of common areas, referred to as common elements.

4. What impact on property ownership do encumbrances have?

• An encumbrance is an interest in property that has the effect of limiting the rights of fee simple ownership of real property

5. What is an easement and what are its impacts on property rights?

• Easements are rights acquired for the benefit of real property, granting rights to use another property. An easement is an interest in land that passes from one owner to another or as is commonly referred to, “runs with the land”.

6. What is a restrictive covenant and what are its impacts on property rights?

• A restrictive covenant is a restriction of use placed on title of the servient tenement for the benefit of the dominant tenement. As with an easement, a restrictive covenant runs with the land and can only be extinguished through the agreement of both current owners of the dominant and servient tenements.

7. Describe the difference between a building scheme and a restrictive covenant.

• A building scheme is a group of restrictive covenants registered against several properties in a development plan that is binding on all purchasers of a property within that development while a restrictive covenant is on a single property.

8. Discuss the main difference between joint tenancy and tenancy in common.

• A joint tenancy is a type of co-ownership of real property typically used by spouses purchasing a matrimonial home. Unlike a tenancy in common, where each owner owns a divided share of the property, joint tenants own an undivided interest in the property.

9. Explain the impact of a judgment on property ownership.

• A judgment, as it relates to a debt, is a judge’s decision that a debt is owed by a debtor to a creditor. Most Lenders will not lend on a property until this debt is paid, unless, with certain Lenders, the debt is being paid from the proceeds.

10. What is a parcel register?

• A Parcel Register is a record that contains a description of the property, as well all any instruments that are registered against the property, such as mortgages, liens, easements, restrictive covenants, etc.

11. What is a survey?

• A Surveyor’s Real Property Report, typically referred to as survey, is a legal document that clearly illustrates the location of all visible public and private improvements relative to property boundaries.

12. What is the purpose of the planning act?

• The Planning Act (the Act) is provincial legislation that sets out the ground rules for land use planning in Ontario. It describes how land uses may be controlled, and who may control them.

13. What role do municipalities have in land use?

In general, municipalities:

• make local planning decisions that will determine the future of communities
• prepare planning documents, such as:
• make an official plan, which sets out the municipality’s general planning goals and policies that will guide future land use
• make zoning bylaws, which set the rules and regulations that control development as it occurs
• ensure planning decisions and planning documents are consistent with the Provincial Policy Statement and conform or do not conflict with provincial plans
• Under the Planning Act, municipalities can put approval processes in place that help make planning work clearer and faster, where it is possible and appropriate.

14. What is a blanket mortgage?

When a lender uses two or more properties as security for a loan

15. When is a blanket mortgage used?

When a lender requires more security for a loan than a borrower has in one property, or in a construction loan (i.e., a high-rise condominium)

Chapter 5: Licensing

True or False Questions

1. 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.

• True

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

• False – this information must be provided in all circumstances.

3. It is a good idea for a brokerage to have a complaints process but this is not required by law.

• False – the MBLAA requires that every brokerage have a complaints process.

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

• True

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

• False – every entity applying for a brokerage license must establish its eligibility

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

• True

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

• False – The Regulations may be amended without going through that process which is required for Bills.

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

• False – it regulates several other financial services industries, including the insurance industry.

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

• False – these are principles that a brokerage is required to implement. Failure to meet the standards of practice is deemed a contravention of the MBLAA and subjects the brokerage to fines or other penalties.

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

• False – Decisions may be appealed to the Tribunal and to civil court.

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

• False – there are currently four: brokerage, broker, agent and administrator.

12. FSRA staff may visit a brokerage within the FSRA registry to examine documents and records.

• True

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

• True

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.”

• False – this is the definition of a mortgage administrator

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

• False – Both a Broker and an Agent can only work for one brokerage at a time.

 

Short Answer Questions

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

• An individual must take and pass a licensing course approved by FSRA, such as REMIC’s RMAC course.

2. What is/are the difference(s) between getting a mortgage agent’s license and a mortgage broker’s license?

• A mortgage broker has taken an additional course and has been a licensed mortgage agent for at least two years.

3. Describe the duties and responsibilities of the principal broker.

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

4. What administrative penalties may be imposed on a brokerage, broker or agent?

• As of February 1, 2022, there are three separate penalties that may be imposed.
  1. Mortgage brokerage or Administrator, up to a maximum of $500,000
  2. Broker or agent, up to a maximum of $100,000, and
  3. Anyone else not licensed, up to a maximum of $500,000

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

• An offence is a serious charge under the MBLAA, while an administrative penalty is a more minor contravention of the legislation.

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

• 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

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

• 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 the brokerage has contravened the MBLAA he or she may refer the complaint to the Superintendent. All complaints must be documented and handled by one or more authorized individuals.

8. What information must be included in every public relations item?

• A brokerage must use its authorized name when conducting any business, and 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.

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

• 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 11: Consumer Protection: Disclosure.

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

• 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.

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

• A brokerage must retain all records as follows:

1. 1. 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
   2. 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)
   3. 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)

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

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

13. What information must be provided to a potential private lender before they can commit to funding a mortgage?

• 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

14. What titles (e.g., broker, agent, etc.) must/can be used by brokers and agents in advertising materials?

• The MBLAA restricts the use of the 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 the other options previously listed, including abbreviations). Unlicensed individuals cannot use those titles.

15. What is the purpose of the MBRCC?

• It is a forum for Canadian mortgage broker regulators to collaborate and promote regulatory consistency to serve the public interest.

Chapter 6: The Role of the Mortgage Agent

1. Who is the client in a brokered transaction?

• The clients in a brokered transaction are the borrower and the lender

2. Discuss the expectations that lenders make regarding their business dealings with a mortgage agent.

1. Provide Borrowers who are suitable for the Lender
2. Provide appropriate protection against fraud
3. Facilitate the transaction to its successful completion (funding).

• These three assumptions form the cornerstone of the relationship between the Lender and the Brokerage community. The best way to ensure that these assumptions are consistently met is to adopt them as core values or philosophies that are applied to every transaction. To meet these assumptions, they must first be explained.
• Providing Borrowers that are suitable for the Lender
  • The Lender’s first assumption is that the Mortgage agent will only send an application on behalf of a Borrower that fits the Lender’s lending criteria. Lending criteria include such things as income and employment requirements, property requirements, credit requirements and so on. This means that the Mortgage agent must know and understand the Lender’s lending criteria and be able to accurately assess the Borrower to determine if they meet those criteria. Unfortunately, a typical Lender complaint is that some Mortgage agents send them applications for products that they do not have. This type of error can erode the confidence that Lenders have in the Brokerage community.

• Providing appropriate protection against fraud
  • Lenders have been suffering from an increase in mortgage fraud over the past several years. Although not technically a Mortgage agent’s legal responsibility, it is a Mortgage agent’s ethical and moral responsibility to make reasonable attempts to protect the Lender from fraud. In many brokerages’ set of Best Practices it is deemed necessary for the mortgage agent to review all documentation received from the Borrower for accuracy and consistency. This means identifying any signs of potential fraud, such as poorly written or typed income verification as well as verifying income and identity.

• Facilitating the transaction to its successful completion
  • A Lender expects that a mortgage agent has submitted an application to that Lender because he or she has determined that Lender to be the most appropriate for the Borrower. In addition, the Lender expects that, if approved, the mortgage transaction will close. That requires the mortgage agent to ensure that the borrower is committed to completing the transaction and understands what is required of him or her to conclude it. A lender also expects that a mortgage agent will be available to assist in ensuring the transaction closes if there is anything that the mortgage agent is required to accomplish such as meeting outstanding conditions.

3. Discuss the expectations that borrowers make regarding their expectations of a mortgage agent.

1. Act in the Borrower’s best interests
2. Completely analyze the Borrower’s needs
3. Make appropriate recommendations based on the Borrower’s needs
4. Facilitate the transaction to its successful completion (funding).

• These four assumptions form the cornerstone of the transaction. By ensuring that these assumptions are met, the Mortgage Agent will develop a strong relationship with the Borrower and ensure that the industry as a whole is well represented.

4. If a finder’s fee is 85 bps, how much would a lender pay the mortgage brokerage on a $800,000 mortgage transaction?

• The amount is calculated by multiplying the mortgage amount by the finder’s fee.
• .0085 x 800,000 = $6,800.00

5. Discuss the pros and cons of creating a budget for the borrower.

• Pros: can assist in determining the affordability of a mortgage thereby ensuring that the mortgage is suitable for the Borrower, a requirement of the MBLAA.
• Cons: time consuming and the Borrower may not wish to go into as much detail as is required to complete a budget

6. What step(s) in the mortgage transaction do you feel is/are the most important and why?

• The initial consultation is extremely important in identifying your client’s needs, however this is an opinion based question. As long as you can back up your decision with valid points there is no right or wrong answer.

7. Define the law of agency

• In common law, agency refers to the relationship that exists when one person or party (the principal) engages another (the agent) to act for them.

8. What is the role of the agent in the law of agency?

• The following are some of the main duties an agent has to their principal:

1. A duty to account for monies received or spent while acting on behalf of the principal
2. A duty to protect the confidential information of the principal
3. A duty of dealing with a third party or the principal in good faith
4. A duty to act in the best interests of the principal
5. A duty of loyalty to the principal
6. A duty to act with reasonable care and skill at all times
7. A duty to follow and obey the instructions of the principal

9. What is the role of the principal in the law of agency?

1. A duty to indemnify the agent, and
2. A duty to pay the agent, for example, a commission or fee

10. What are the 5 C’s of credit?

1. Credit
2. Collateral
3. Capacity
4. Character
5. Capital

11. What do you feel is the most important “C” and why?

• This is a personal opinion with no right or wrong answer

12. Explain what “meeting conditions” means.

• In the lender’s commitment letter, there will be a list of conditions that must be met before the mortgage can be funded. One of the many conditions may be to provide the lender with appropriate income verification. The commitment letter will typically describe what documentation is considered acceptable to the lender. It is up to the mortgage agent to advise the borrower of the conditions and assist the borrower in meeting the conditions to ensure that the mortgage is funded.

13. When does an agent prepare disclosure documents?

• The lender/investor disclosure is prepared before submitting an application to the investor, while the borrower disclosure is prepared after receiving a commitment from a lender

14. What is an amortization schedule?

• An amortization schedule is a printout of all of the mortgage payments during the term, including the amount of interest and principal per payment and the outstanding mortgage balance after each payment is made.

15. What does “funding the transaction” mean?

• Once the lawyer has completed the appropriate tasks, the mortgage will be registered, and the funds will be disbursed by the lawyer from the lawyer’s trust account.

16. In a mortgage transaction, on whose behalf does the lawyer work?

• While the borrower pays the lawyer’s fee, the lawyer is working primarily on behalf of the lender.

Chapter 7: Insurance in the Mortgage Industry

1. How has mortgage default insurance improved the mortgage market?

• By enabling lenders to make loans in excess of 80% loan to value and recover insured losses by making a claim to the insurer, thereby ensuring the stability of the banking sector.
• By enabling borrowers to receive high ratio mortgages with favourable terms and favourable interest rates

2. Who are the current mortgage default providers in Ontario?

• CMHC, Sagen and Canada Guaranty.

3. How does default insurance benefit a borrower?

• Enables borrowers to obtain higher LTV mortgages with competitive rates and terms from chartered banks

4. Who pays the default insurance premium?

• The lender, who then charges the borrower the same amount as the premium it paid to the insurer

5. How does default insurance protect the lender?

• Because it pays the lender if the borrower defaults and the lender suffers a loss, it prevents lenders from losing money on high ratio mortgages

6. How can a borrower currently in default be assisted by the lender and the mortgage default insurer?

• Option 1: Prepay and Re-Borrow
• Option 2: Extended Mortgage Payment Deferral
• Option 3: Extension of Amortization
• Option 4: Special Payment Arrangement (Partial payments with a recovery plan)
• Option 5: Capitalization

7. How does title insurance benefit a) the borrower? b) the lender? c) the real estate lawyer?

• the borrower: Provides coverage against fraud and forgery from the time the policy is in force.
• the lender: Provides coverage against title defects and items that occurred before closing that may make the property unmarketable
• the real estate lawyer: Reduces the amount of work required to close a mortgage transaction

8. What type of insurance would you suggest to a purchaser of a condominium?

• Contents insurance since the master policy only covers the unit, not the contents.

9. When was title insurance first introduced?

• The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853. Title Insurance was developed in the United States and until the early 1990s was not available in Canada. Virtually all real estate transactions in the United States currently carry title insurance, while its popularity is continuing to grow in Canada.

10. Discuss the main differences between mortgage creditor life insurance and term life insurance.

	Mortgage Creditor Insurance	Term Life Insurance
Underwriting	Post-underwritten	Pre-underwritten
Convenience	Quick and easy to qualify	May require medical investigation, lengthening the process
Portability	None	Independent of a lender
Premiums	Level	Level
Amount of Initial Coverage	Determined by the amount of the mortgage	Determined by the insured
Protection on default/illness	If the borrower defaults or cannot make their mortgage payment, the insurance will cease as the insurance is tied to the mortgage payment	As long as the insured can pay the insurance premium, the insurance will continue, regardless of whether the mortgage payment cannot be made.
Amount of Continuing Coverage	Decreases	Constant
Expiry	When the mortgage is paid or upon transfer to a new lender	At the end of the term
Beneficiaries	Lender	Named by the insured
Number of Death Benefits	One, the outstanding balance of the mortgage	If two homeowners are insured and there is a common disaster where both are killed, two death benefits are paid.
Speed of Claim Payment	Can take up to several months due to insurer investigation	Paid within days

 

11. Which companies are currently licensed to provide title insurance in Ontario?

• Chicago Title Insurance Company https://chicagotitle.ca/
• FCT Insurance Company Ltd (First Canadian Title) https://fct.ca/
• TitlePLUS https://titleplus.ca/
• Stewart Title Guaranty Company https://www.stewart.ca/

12. Without errors and omissions insurance, what might the consequences be to a mortgage broker who commits an error and is sued by a client?

• The broker would have to pay to defend themselves and pay any successful judgment against them

13. What is the CMHC Improvement program?

• A program that can assist real estate salespersons to sell homes that need immediate repairs that buyers might not otherwise be interested in purchasing.

14. What is a default management program?

• Both CMHC and Sagen provide mortgage default management programs that are designed to assist borrowers who get into financial difficulty and have trouble making their scheduled mortgage payments.

15. Describe the default management tool, capitalization.

• For a borrower who has little or no equity in the property, but who has stable income and can demonstrate the ability to repay the outstanding mortgage balance and capitalized amount over the remaining amortization period. Permits the borrower to add arrears of Principal and Interest, unpaid taxes, utility bills, property repair costs to protect the security, and other outstanding charges and arrears which become payable as part of a claim.
• The Approved Lender can approve and implement this option up to a total maximum capitalized amount of $20,000 subject to a documented and substantiated workout analysis. For amounts over $20,000, CMHC authorization is required. Capitalization is a technique of last resort and should be used only once during the life of the loan.

Chapter 8: Broker Specializations

1. Define ICI.

• ICI (industrial, commercial, investment), often just referred to as commercial

2. List the six main differences between residential and commercial transactions.

1. Property
2. Income
3. Appraisal
4. Environmental Site Assessment
5. Lenders
6. Timing

3. What is used in calculating the Net Operating Income?

• The general framework for calculating net operating income is as follows:
• Gross Potential Revenue + Other Income – Vacancy and Bad Debt Allowance = Gross Realized Revenue (also called Effective Gross Income) – Operating Expenses (paid by landlord) = Net Operating Income

4. Explain the Debt Coverage Ratio.

• The debt service coverage ratio (DSCR or simply DCR), is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity’s (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan.

5. What is an environmental assessment and when is it required?

• An investigation in relation to land to determine the environmental condition of property and includes a phase one environmental site assessment and may include a phase two environmental site assessment.
• Required whenever there may be concern about contamination of land

6. What is a private mortgage?

• A mortgage funded by a private lender

7. What is a typical rate of return in a private mortgage?

• For a first mortgage, a private lender will traditionally charge in excess of 7% interest, and as high as 9% interest, while on a second mortgage interest rates of 13% and higher are typical, making second mortgages the vehicle of choice among most private lenders.

8. Describe why assessing the risk is a challenge for a private lender.

• This requires the private lender to understand the underwriting process (the process of assessing the merits of an application) as well as being able to analyze the borrower’s credit, income and debt service ratios. If the private lender is not sophisticated enough to complete these analyses, then they will have to rely on their mortgage agent to make a recommendation.

9. What is a qualified syndicated mortgage?

• These are mortgage investments that can be arranged by a mortgage brokerage. A qualified syndicated mortgage must meet the following criteria:
  • It is arranged through a mortgage brokerage
  • It secures a debt obligation on property that,
  • is used primarily for residential purposes,
  • includes no more than a total of four units, and
  • if used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes.
  • At the time the syndicated mortgage is arranged, the amount of the debt it secures, together with all other debt secured by mortgages on the property that have priority over, or the same priority as, the syndicated mortgage, does not exceed 90 per cent of the fair market value of the property relating to the mortgage, excluding any value that may be attributed to proposed or pending development of the property.
  • It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage.
  • The rate of interest payable under it is equal to the rate of interest payable under the debt obligation.

10. What is the main difference between a qualified syndicated mortgage and a syndicated mortgage?

• It doesn’t meet the definition of a qualified syndicated mortgage

11. What is a mortgage-backed security?

• A mortgage-backed security is an investment in a pool of amortized residential mortgages insured through CMHC under the National Housing Act (NHA).

12. What is a MIC?

• A mortgage investment corporation (MIC) is a corporation that enables small investors to invest in a diversified pool of mortgages on residential real estate with the benefit of using the corporate form by purchasing shares in the corporation.

13. Does a MIC share the same type of liquidity issue as a private mortgage? Why or why not?

• Yes, because selling shares back to the corporation requires the corporation’s approval, which may or may not be provided, based on the subscription agreement

14. Do MICs receive any special tax considerations?

• Yes, a MIC is generally treated as a conduit for income tax purposes. Its income may be flowed through to its shareholders and taxed in their hands without tax at the corporate level.

15. What is the difference between a permitted client and a non-individual permitted client?

• FSRA’s definition of Permitted Clients are entities and individuals that are presumed to have significant experience and knowledge regarding financial matters, including investments, and robust financial means.
• FSRA’s Interpretation of Non-Individual Permitted Clients typically includes, for example, financial institutions, regulated pension plans, governments or government agencies, dealers or advisers registered under the securities regime and high-net-worth companies (net assets of at least $25 million). Non-Individual Permitted Clients may be Mortgage Investment Vehicles (MIEs) whose: (a) units are sold only to Permitted Clients investors; and, (b) units’ distribution is regulated under another regulatory regime such as the Securities Act.

Chapter 9: Marketing: The Impact of Legislation and Regulations

1. What is a “Bait and Switch”?

• A bait and switch is an advertisement that misrepresents the consumer’s opportunity to purchase the goods and services at the terms presented.

2. What does the Canadian Code of Advertising Standards promote?

• The Code promotes truth, honesty, fairness, and accuracy in advertising and is comprised of fourteen clauses that set the criteria for acceptable advertising.

3. What does the Mortgage Brokerages, Lenders and Administrators Act, 2006 prohibit regarding advertising?

• Section 27 states that, “No person or entity shall authorize any advertisement for a mortgage which purports to contain information relating to the cost of borrowing or any other pre-scribed matter unless the advertisement contains such information as may be required by the regulations and is in such form and manner as may be prescribed.”

4. List five examples of public relations materials

Any five of the following:

• Business cards
• Newspaper ad, whether it is a classified ad or display ad
• A Sign (e.g., on a building or vehicle)
• Billboard or poster
• Bench ad
• A Promotional email
• Radio ad
• Magazine ad
• Flyer or Brochure
• Website
• An Ad placed on a website
• An Advertorial (an article that is an advertisement)

5. When must a mortgage brokerage include a mortgage agent’s name in public relations material?

• This is not required, however if the brokerage is using an agent’s name, it must then include their licensed tile, such as mortgage agent.

6. What must be included in public relations materials?

• The following must be included in all public relations materials that an agent or broker is using.
  • Brokerage name (if a franchise state that it is independently owned and operated)
  • Brokerage license number
  • If an agent is using their name in the materials, their name as registered with FSRA
  • If an agent is using their name in the materials, their title – for example, mortgage agent or mortgage broker
• No other information is required; however additional information may be included. For example, an agent may wish to include a brokerage address, contact information, etc.

7. Define misleading advertising

• When a representation related to a product or service is deceptive, materially false or misleading in order to persuade the consumer to buy it

8. What Regulation deals with misleading advertising?

• Section 9 of Regulation 187/08 states, “A mortgage broker or agent shall not include false, misleading or deceptive information in their public relations materials.”

9. Is the statement, “I have access to over 60 lenders” misleading? Why or why not?

• Likely!
  • Is this true? The question that must be asked before using this statement is how many lenders did the brokerage actually use in the previous year? The MBLAA and its Regulations require this answer to be disclosed to borrowers when requested. If the brokerage didn’t use in excess of 50 lenders in the previous year, why would its representative make this statement? In other words, what is the goal of this statement?
  • In most cases the goal of this type of statement is to convey to the consumer that the brokerage can shop for the best mortgage for him or her by having access to a vast number of lenders. If the number 50 is factually incorrect the brokerage may be using misleading terminology in its advertising. It should ensure that all of its public relations material accurately reflects the number of lenders that it has actually used and whenever this is not the case the materials should be amended.

10. What is the purpose of PIPEDA?

• The purpose of the Act is “to establish, in an era in which technology increasingly facilitates the circulation and exchange of information, rules to govern the collection, use and disclosure of personal information in a manner that recognizes the right of privacy of individuals with respect to their personal information and the need of organizations to collect, use or disclose personal information for purposes that a reasonable person would consider appropriate in the circumstances.”

11. What constitutes personal information?

• age, name, income, ethnic origin, religion or blood type
• opinions, evaluation, comments, social status or disciplinary actions
• credit records, employment history and medical records.

12. How long can personal information be kept according to PIPEDA?

• Only as long as it is needed for its original purpose

13. What is the role of CASL?

• The law helps to protect Canadians from spam while ensuring that businesses can continue to compete in the global marketplace.

14. What does CASL prohibit?

• Canada’s Anti-Spam Legislation generally prohibits companies from:
  • sending commercial electronic messages to an electronic address, without your consent (permission). This includes emails, social networking accounts and text messages;
  • alteration of transmission data in an electronic message, in the course of a commercial activity, which results in the message being delivered to a different destination without your express consent;
  • installing computer programs, in the course of a commercial activity, without the express consent of the owner or user (e.g., an authorized employee) of the computer system;
  • promoting products or services online using false or misleading representations;
  • collecting personal information by accessing a computer system or electronic device illegally (e.g., in violation of federal law, such as the Criminal Code of Canada); and
  • collecting or using electronic addresses using computer programs without your permission (this is known as ‘address harvesting’).
  • What government agencies are responsible for enforcing CASL?

15. What government agencies are responsible for enforcing CASL?

• There are three government agencies responsible for enforcement of the law. The law allows:
  • The Canadian Radio-television and Telecommunications Commission (CRTC) to issue administrative monetary penalties for violations of the anti-spam law.
  • The Competition Bureau to seek administrative monetary penalties or criminal sanctions under the Competition Act.
  • The Office of the Privacy Commissioner to exercise powers under the Personal Information Protection and Electronic Documents Act.

Chapter 10: Building a Business as a Mortgage Agent

1. What is the typical question that a potential client asks when first contacting a Mortgage Agent?

• Typically, it is, “What is your best or current five year rate?”

2. What are five tips for success when using a call script?

• Practice makes perfect
  • Remember to practice your script before you start getting calls. Like cold calling, ask your spouse or significant other (someone who will give you helpful advice on how you are performing) to be your incoming call or practise by recording yourself and listening to the conversation. In all cases, try to record yourself and review the tape after your calls. This way you can identify if you are sounding aggressive, defensive, or just right!

• Use a mirror
  • Because a smile translates across a telephone line, you should ensure that you are always smiling when you cold call. A great way to ensure that you do is by having a small mirror in front of you so that you can watch your smile.

• Write things down
  • Be sure to have pen and paper for each call. Write down the caller’s name as soon as you get it (there’s nothing more embarrassing then forgetting a caller’s name after they’ve just given it to you!), and any other details that might be helpful.

• Make these words your own
  • Make sure you use words and phrases that are comfortable for you. In other words, rephrase the script to match how you normally speak. This will ensure that you do not sound like you are reading from a script, even when you are!

• Do not be afraid
  • Remember that the phone can be your best friend. The more comfortable you are on the phone, the easier it will be to meet your objective: getting appointments with qualified clients.

3. Discuss the benefits of using a call script.

• It allows the Agent to remain focused on covering certain topics that he or she feels are necessary in the call and allows the Agent to refer to standard responses for typical questions. Professional Agents always use a script, whether in paper format or by committing the script to memory.

4. What is a cold call?

• A cold call is an outgoing call made to someone who is not known to the Agent and who has not been referred to him or her.

5. How can a cold call be turned into a warm call?

• The object of a cold call is to transform the “cold” individual into a “warm” prospect, or someone who is warm to the idea of doing business with the Agent. By following a script, the Agent has the best chances of success!

6. What information should be provided to the caller within the first ten to fifteen seconds of a call?

• Who you are.
• The benefit you will provide to him or her.

7. Why is it important to develop a relationship with a potential client?

• In developing a relationship you turn a potential client into an actual client who will likely close the deal and provide you with future business

8. Discuss the differences between a Mission and a Vision Statement.

• A Mission Statement is a plan for companies and people to accomplish the goals they set. It is designed to shape the company’s or individual’s identity and is typically based on a vision, goal, or ethics.
• A Vision Statement is something that the business or mortgage agent aspires to become. It should illustrate the core belief of the business or mortgage agent and effectively communicate that to the reader.

9. What does a business card provide to the mortgage agent?

• The purpose of an effective business card is to attract and set in motion the wheels of acquiring potential users of your service. It provides the mortgage agent with:
  • A direct marketing vehicle
  • A person-to-person sales call
  • An advertisement
  • A lead generator
  • A networking tool
  • A visual representation of you.

10. What are the benefits of an audio business card?

• Audio business cards are definitely an attention grabber, telling potential clients that the mortgage agent is different and serious about their business. They are less likely to be thrown away and tend to peak people’s curiosity, causing them to be listened to in their entirety. Audio business cards are gaining in popularity and can typically be purchased with software through businesses such as Staples, Future Shop, etc.

11. Is networking typically more or less expensive than marketing? Explain your answer.

• Networking can be one of the most cost-effective means of obtaining new business, which can be especially important for new salespeople. Because it involves meeting people, it can be less expensive than paying for marketing.

12. In what ways can a mortgage agent differentiate him or herself from the competition?

• Product availability
• Service
• Professionalism
• Niche marketing

13. Why are testimonials beneficial in the marketing of intangible products or services?

• The use of testimonials can have the effect of reducing the need of a consumer to touch or feel a product. Testimonials from satisfied clients have the effect of personalizing the process. The consumer can relate to another person who has had a beneficial experience and translate that experience to him or her. In essence this provides the consumer with something tangible: another consumer who can be seen or heard.

14. Discuss three ways that a mortgage agent can obtain referrals.

• Any of the following:
  • Provide your referrers with a simple referral form that they can email or fax to you. It only needs some basic information, such as who the client is, their contact information and what they need.
  • Thank-you letters: ensure that you always send a thank-you letter to your referral source, whether the referral turns into a client or not.
  • Update your database with the referral information.
  • Contact the potential customer as soon as possible.
  • Guarantee confidentiality to all parties.
  • Send a thank-you gift when the financing is completed.
  • Invite your referrers to company parties to show your appreciation.

15. How many clients do you need to create a database?

• 1!

Chapter 11: The Initial Consultation

1. What is a file worksheet?

• A file worksheet is a key component used for recording notes and more importantly providing a quick summary of the file.

2. Why should you ask if a client is dealing with someone else?

• To find out if the client has already applied elsewhere

3. Describe the documentation that must be obtained by a Mortgage Agent in every mortgage transaction.

• Employment Verification
• PIPEDA Consent
• Photo Identification
• Divorce/Separation Agreement (if applicable)
• Child Support Order/Agreement (if applicable)

4. What documentation is typically required for a self-employed individual?

• Financial Statements
• Business License
• Business Cheque

5. What documentation is typically required for a purchase transaction?

• Purchase and Sale Agreement
• MLS Listing
• Proof of Downpayment
• Rental Letter (if applicable)
• Realtor Information.

6. What documentation is typically required for a refinance, equity take-out or switch transaction?

• Current Mortgage Statement
• Charge/Mortgage
• Transfer/Deed
• Property Tax Statement
• Property Insurance Policy
• Mortgage Repayment History (if applicable).

7. Discuss the importance of the file checklist.

• A file checklist is a key component for ensuring that the required documentation is obtained on every transaction. This prevents the embarrassment of having to go back to a client for additional documentation in the future and provides a quick summary of what is in the file.

8. Where are the different places that a client may be met and what are the pros and cons of each?

• The client’s home
• The Mortgage Agent’s office
• Another outside location
• Pros and cons are found in chapter 11

9. Why is it important to verify an applicant’s identity?

• In today’s mortgage market, identity theft and impersonation are a significant concern, making it necessary for the Mortgage Agent to verify the identity of his or her client at the initial consultation.

10. What should you do if you cannot verify a client’s identity?

• As per FSRA, “Each Mortgage Brokerage has a duty to take reasonable steps to verify the identities of its clients/borrowers and other parties in mortgage transactions. If a Mortgage Brokerage is not able to identify the identity of another party, it must advise the client/borrower.

11. Discuss the difference between a co-applicant and a guarantor.

• A co-applicant will go on title with the primary borrower and is equally responsible for the debt. A guarantor, while equally responsible for the debt, is not registered on title.

12. Why is it important to have the mortgage application signed by the applicant(s)?

• By having the client’s signature on the application, the Mortgage Agent has consent to complete the necessary investigations to obtain a commitment from a Lender. Although verbal authorization is acceptable, some applicants may dispute providing authorization at some point in the future.

13. How can a Mortgage Agent determine the applicant’s needs?

• To determine the applicant’s needs, specific questions must be asked. Refer to the Needs Assessment form.

14. If a borrower is doing a refinance, is the value of their house listed as an asset? Why or why not?

• Yes, because it is owned by the borrower and is therefore an asset

15. What does “to remain?” mean?

• Is the debt going to be present after the new mortgage is advanced. Typically no if the debt is being paid off from the proceeds.

Chapter 12: Required Documents

1. What is the purpose of a file checklist

• A file checklist is a key component for ensuring that the required documentation is obtained on every transaction. This prevents the embarrassment of having to go back to a client for additional documentation in the future and provides a quick summary of what is in the file. If the file is broken into sections based on the checklist, then every file will follow the same order, allowing the mortgage agent to know where to find specific documents in any file.

2. What information does a T5 supply?

• A T5 is an information slip provided to a taxpayer who receives:
  • eligible dividends and dividends other than eligible dividends (including most deemed dividends)
  • interest from one or more of the following:
  • a fully registered bond or debenture
  • money loaned to or on deposit with, or property of any kind placed with, a corporation, association, organization, institution, partnership, or trust
  • an account with an investment dealer or broker
  • an insurance policy or annuity contract (when the interest is paid by an insurer)
  • an amount owing as compensation for expropriated property
  • Other payments as indicated by CRA

3. When does a taxpayer use a T2125?

• Form T2125, Statement of Business or Professional Activities, is used to report a taxpayer’s business and professional income and expenses. This form can help the taxpayer calculate their gross income and their net income (loss), which are required when they complete their Federal Income Tax and Benefit Return.

4. What is a T1?

• This is the Canadian tax return that individuals complete every year to calculate whether they owe tax on their income.

5. Briefly describe when a Mortgage Agent would be required to obtain the following documents from an applicant.

• T4: typically when a Borrower has salaried or hourly employment income
• T4A: typically when a Borrower has commission income
• Job Letter: typically when a Borrower’s income or position information is required
• Paystub: typically in addition to a Job Letter to confirm that the individual is still employed and that the YTD income matches the Job Letter
• NOA: typically to support income verification for a previous year and/or to confirm that there are no income taxes outstanding
• Agreement of Purchase and Sale: typically when a Borrower is purchasing a property
• Gift Letter: if the Borrower is using funds for his or her down payment that has been given to him or her by a family member
• Property Assessment: can be used by the Agent to support the Borrower’s value of his or her house. It is not used to confirm the value nor will the Lender accept this, but it can support the value.
• Property Tax Bill: used to confirm the amount of taxes payable and if any property taxes are outstanding
• Mortgage Statement: typically used to confirm the outstanding balance of a Borrower’s current mortgage when refinancing
• Status Certificate: required when financing a condominium unit

6. Describe the information found in an MLS document.

• An MLS will provide details about the property, its sale price and Realtor information.

7. What is a Certificate of Independent Legal Advice and under what circumstances would it be required?

• This document proves that an individual has been given advice by his or her lawyer with regards to the proposed mortgage. It is usually required when the proceeds of a refinance are being provided to a third party and not the Borrower or if the loan is a reverse mortgage.

8. Under what circumstances must a Mortgage Agent complete a Creditor Insurance Application?

• This must be completed in every transaction, since part of the application is the waiver. If the Borrower(s) want the insurance the full application must be completed, if they do not they must complete the waiver section.

9. What is the purpose of a gift letter?

• A gift letter is a document that outlines the terms of a gifted down payment in a purchase transaction. Money provided by a family member to be used as a down payment, as long as it is not repayable to that family member, can be used in lieu of the borrower having to use their own funds for the down payment. This form must be completed by both the recipients, or the purchasers, and the donors, who are the family members providing the gift to the recipients.

10. What is the balance sheet equation?

• Assets = Liabilities + Owner’s Equity

11. What is one way to tell if an NOA has been falsified?

• Notice that figures up to section 6150 are whole numbers only and do not have any cents. Have a look for this when reviewing a borrower’s document to ensure it is authentic.

12. What information must be in a Job Letter for it to be acceptable to a Lender?

• It should be on company letterhead, have the company address and contact information, list the Borrower’s position, income, how it is paid (i.e. salary or hourly), the frequency of payment (i.e. weekly), if the person is full or part-time and/or on probation, the start date and the writer’s information and contact information.

13. The next section contains blank documents found in this chapter. Test your knowledge of these documents by writing the appropriate information in documents’ blank fields without referring to the chapter. Once done, refer to the chapter to review the accuracy of your answers.

• This is a tool that can be used for studying purposes.

14. Is Purview a free service for brokerages?

• No, it currently costs $500 per year for 50 reports

15. Is a tax bill required to obtain a mortgage when buying a new home?

• No, it should be obtained when doing a switch or refinance

Chapter 13: Application Ratios

1. A house has been appraised at a value of $550,000. The owner requires a 1st mortgage in the amount of $255,000 and a 2nd mortgage in the amount of $70,000.

a) What is the LTV of the 1st mortgage?

LTV = (255,000 / 550,000) x 100

LTV = 4.63636364E-1x 100

LTV = 46.36%

b) What is the LTV of the combined 1st and 2nd mortgages?

LTV = ((255,000 + $70,000) / $550,000) x 100

LTV = ($325,000 / $550,000) x 100

LTV = 0.590909090909 x 100

LTV = 59.09%

2. Tedros has been approved for a mortgage in the amount of $262,500 on a 1st mortgage. The property he is buying is worth $350,000. What is the LTV of this mortgage?

LTV = (262,500 / 350,000) x 100

LTV = 0.75 x 100

LTV = 75%

3. Adela and Carlos are applying for a mortgage through you, their local Mortgage Agent. They have requested a mortgage in the amount of $455,000 with weekly payments for a 3 year term at 5.95% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $385 per month, annual car insurance of $2,712, a weekly loan payment of $45 and total monthly credit card payments of $510. Their property taxes are $2,100 per year. Their combined income is $126,966 per year and heat on this house is $100 per month. The proposed mortgage payment is $667.43.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($667.43 x 52) + $2,100 + ($100 x 12)] / $126,966) x 100

GDS = [($34,706.36 + $2,100 + $1,200) / $126,966] x 100

GDS = ($38,006.36 / $126,966) x 100

GDS = 2.99342816E-1 x 100

GDS = 29.93%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$38,006.36 + ($385 x 12) + ($45 x 52) + ($510 x 12)] / $126,966) x 100

TDS = [($38,006.36 + $4,620 + $2,340 + $6,120) / $126,966] x 100

TDS = ($51,086.36 / $126,966) x 100

TDS = .40236252225

TDS = 40.24%

4. Hisa and Botan are applying for a mortgage through you, their local Mortgage Agent. They have requested a mortgage in the amount of $300,000 with monthly payments for a 5 year term at 4.95% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $275 per month, annual car insurance of $2,000, a weekly loan payment of $95 and total monthly credit card payments of $300. Their property taxes are $2,100 per year. Their combined income is $95,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,736.29.

a) What is their GDS

GDS = (PITH / INCOME) x 100

GDS = ([($1,736.29 x 12) + $2,100 + ($100 x 12)] / $95,000) x 100

GDS = [($20,835.48 + $2,100 + $1,200) / $95,000] x 100

GDS = ($24,135.48 / $95,000) x 100

GDS = 2.54057684E-1 x 100

GDS = 25.41%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([($24,135.48) + ($275 x 12) + ($95 x 52) + ($300 x 12)] / $95,000) x 100

TDS = [($24,135.48 + $3,300 + $4,940 + $3,600) / $95,000] x 100

TDS = ($35,975.48 / $95,000) x 100

TDS = 3.78689263E-1 x 100

TDS = 37.87%

5. Joe and Mary are applying for a mortgage through you, their local mortgage agent. They have requested a mortgage in the amount of $640,000 with bi-weekly payments for a 5 year term at 3.75% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $405 per month, annual car insurance of $3,000, a weekly loan payment of $55 and total monthly credit card payments of $400. Their property taxes are $2,100 per year. Their combined income is $145,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,512.75.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,512.75 x 26) + $2,100 + ($100 x 12) / $145,000) x 100

GDS = [($39,331.50 + $2,100 + $1,200) / $145,000] x 100

GDS = ($42,631.50 / $145,000) x 100

GDS = 2.94010345E-1 x 100

GDS = 29.40%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$42,631.50 + ($405 x 12) + ($55 x 52) + ($400 x12)] / $145,000) x 100

TDS = [($42,631.50 + $4,860 + $2,860 + $4,800) / $145,000] x 100

TDS = ($55,151.50 / $145,000) x 100

TDS = 3.80355172E-1 x 100

TDS = 38.04%

6. Lin and Shen have been approved for a mortgage through you, their local Mortgage Broker in the amount of $200,000 with monthly payments for a 1 year term at 8.25% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $405 per month, a Line of Credit payment of $180 per month and total monthly credit card payments of $400. Their property taxes are $2,100 per year. Their combined income is $75,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,558.46.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,558.46 x 12) + $2,100 + ($100 x 12) / $75,000) x 100

GDS = [($18,701.52 + $2,100 + $1,200) / $75,000] x 100

GDS = ($22,001.52 / $75,000) x 100

GDS = 0.2933536 x 100

GDS = 29.34%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$22,001.52 + ($405 x 12) + ($180 x 12) + ($400 x12)] / $75,000) x 100

TDS = [($22,001.52 + $4,860 + $2,160 + $4,800) / $75,000] x 100

TDS = ($33,821.52 / $75,000) x 100

TDS = 0.4509536 x 100

TDS = 45.10%

7. Dalila has been approved for a $30,000 2nd mortgage with monthly payments, a 1 year term, 10 year amortization at 12.5% compounded semi-annually. She has a first mortgage with an outstanding balance of $220,000 (down from $230,000 when she first took out the mortgage) with bi-weekly payments of $700. The second mortgage is going to consolidate her credit cards for which she currently pays $390 per month. She has a car lease of $360 per month, annual car insurance payments of $2,300 and monthly home insurance premiums of $150. Her property taxes are $3,500 per year and it costs $100 per month to heat her home, which has been appraised at $350,000. Dalila earns $78,000 per year as a manager. The proposed mortgage payment for the 2nd mortgage is $433.66.

a) What is the LTV of the 1st mortgage?

LTV = ($220,000 / $350,000) x 100

LTV = 6.28571429E-1 x 100

LTV = 62.86%

b) What is the LTV of only the 2nd mortgage (excluding the 1st mortgage)?

LTV = ($30,000 / $350,000) x 100

LTV = 8.57142857E-2 x 100

LTV = 8.57%

c) What is the total LTV of the 2nd mortgage?

LTV = [($220,000 + $30,000) / $350,000] x 100

LTV = ($250,000 / $350,000) x 100

LTV = 7.14285714E-1 x 100

LTV = 71.43%

d) What is her GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($433.66 x 12) + ($700 x 26) + $3,500 + ($100 x 12) / $78,000) x 100

GDS = [($5,203.92 + $18,200 + $3,500 + $1,200) / $78,000] x 100

GDS = ($28,103.92 / $78,000) x 100

GDS = 3.60306667E-1 x 100

GDS = 36.03

e) What is her TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$28,103.92 + ($360 x 12)] / $78,000) x 100

TDS = [($28,103.92 + $4,320) / $78,000] x 100

TDS = ($32,423.92 / $78,000) x 100

TDS = 4.15691282E-1 x 100

TDS = 41.57%

8. Your clients, Aarav and Anika have applied for a mortgage with you. They are buying a high-rise condo and need a mortgage in the amount of $320,000. You’ve suggested that they take a mortgage with monthly payments for a 5 year term at 3.35% compounded semi-annually with a 20 year amortization. They have told you that they also have a car payment of $310 per month, annual car insurance of $2,000, a weekly loan payment of $80 and total monthly credit card payments of $275. The property taxes are $2,100 per year while the condo maintenance fees are $418 per month. Their combined income is $117,000 per year and heat, which is not included in the maintenance fee, is estimated at $100 per month. The proposed mortgage payment is $1,827.53.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,827.53 x 12) + $2,100 + ($100 x 12) + (418 x .50 x 12) / $117,000) x 100

GDS = [($21,930.36 + $2,100 + $1,200 + $2,508.00) / $117,000] x 100

GDS = ($27,738.36 / $117,000) x 100

GDS = 0.237080000 x 100

GDS = 23.71%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$27,738.36 + ($310 x 12) + ($80 x 52) + ($275 x 12)] / $117,000) x 100

TDS = [($27,738.36 + $3,720 + $4,160 + $3,300) / $117,000] x 100

TDS = ($38,918.36 / $117,000) x 100

TDS = 0.332635555556 x 100

TDS = 33.26%

9. Asha would like to apply for a mortgage to purchase a new home valued at $400,000. Asha has stated that the property taxes are $2,900 per year. Her income is $73,000 per year. Further investigation shows that Asha has a car payment of $275 per month, credit card payments of $195 per month and a loan payment of $300 per month.

a) What is the maximum monthly mortgage payment for which Asha qualifies based on a TDS of 42%?

Maximum Mortgage Payment (MMP) = ((Income x Max TDS / 100) – (Property Taxes + 1/2 Condo Maintenance Fee + Heat + Other Debts)) / 12

MMP = (($73,000 x 42% / 100) – (($2,900 + ($100 x 12) + ($275 x 12) + ($195 x 12) + ($300 x 12))) / 12

MMP = (($73,000 x.42) – ($2,900 + $1,200 + $3,300 + $2,340 + $3,600)) / 12

MMP = ($30,660 – $13,340) / 12

MMP = $17,320 / 12

MMP = $1,443.3333333333

MMP = $1,443.33

Therefore, the maximum mortgage payment for which Asha qualifies is $1,443.33. If you then wanted to calculate the maximum mortgage amount you would use this payment, along with a specific interest rate, amortization period and $0 outstanding balance to calculate it.

Chapter14: Borrower Credit

1. Define the term trade line.

• Information on a debt, found in a credit report, that contains the date that the credit was granted, the balance, terms and repayment history

2. Discuss the items that are involved in calculating a credit score.

• Payment History, Amounts Owed, Length of Credit History, New Credit and Inquiries, Types of Credit, and Number of Trades on File are all used to calculate a credit score.

3. What can an individual do to increase his or her credit score?

• Ensure that payments are always made on time; limit the number of credit inquiries; maintain balances below 30% of credit limits.

4. If an individual has a judgment filed against him or her, in what section of a credit bureau would this information be found?

• Public Records section.

5. If an individual has an account rated as an R3 on his or her credit bureau, what type of credit is this rating referring to and how many months in arrears is this account?

• This is a revolving account such as a credit card and it is 2 months in arrears.

6. What is the relationship between a credit score and the delinquency rates of Canadians?

• The lower the credit score the higher the delinquency rate.

7. How long does a bankruptcy remain on an individual’s credit report provided by:

• Equifax? 6 years
• b) Transunion? 7 years

8. How long does credit counselling remain on an individual’s credit report provided by:

• Equifax? 3 years.
• b) Transunion? 2 years.

9. If an individual disputes an item in his or her credit report, what can he or she do?

• Contact the Credit Bureau to remove the item.

10. Can a Mortgage Agent provide a copy of a client’s credit report to the client?

• No, a Borrower must contact the Credit Bureau directly for this report.

11. What is the name of Equifax’s credit score?

• Beacon score

12. What is the name of Trans Union’s credit score?

• Empirica score

13. What is the Bank. Nav. Index?

• The Bank. Nav. Index, short for the Bankruptcy Navigator Index, is a proprietary scoring model used by Equifax to predict the likelihood of a consumer becoming bankrupt within the next 24 months.

14. What is the likelihood of a person with a 570 Beacon score to be delinquent?

• 21%

15. How many inquiries will appear in the Member Inquiries section?

• However many there have been in the past 36 months

Chapter 15: Property Valuation

1. List the different types of properties that a mortgage agent will typically arrange financing for.

1. Detached
2. Semi-detached
3. Row-townhouses
4. Condominium unit
5. Duplexes, triplexes, fourplexes
6. Co-operatives (co-ops)

2. What is a co-op?

• A corporate entity, often a non-profit, owns the land and the building, including each of the individual units in the building. A purchaser buys shares in the corporation and does not have individual ownership of their unit. Because there is no real property ownership a purchaser needs to get a loan to purchase the shares instead of a mortgage to purchase the property.

3. What are the factors that affect the demand for real estate?

1. Demographics
2. Interest rates
3. Government policies
4. The economy
5. Affordability

4. What are the factors that affect the supply of real estate?

1. Building permits
2. Listings
3. Land use regulations

5. List the different purposes for which an appraisal might be required.

• The cost to rebuild the home in case of damage, such as by fire (insurable value)
• A value so that a municipality can apply its property tax rate (taxation purposes)
• The price that a real estate investor would pay for a property based on his or her preferred rate of return (investment value)
• The amount that the property can obtain if sold (selling price)
• The future value of a property under construction (future price)
• The value of a property being expropriated by the Crown (expropriation value)
• The market value of a property for a Lender to decide on an appropriate loan amount for mortgage financing.

6. What is the role of the appraiser in the appraisal process?

• The appraiser is the accredited individual who completes the appraisal report.

7. What organizations award designations to appraisers?

• The Appraisal Institute of Canada (AIC), Canadian National Association of Real Estate Appraisers (CNAREA), Ontario Real Estate Association and the Real Estate Institute of Canada.

8. What are the different designations that an appraiser may have?

• The AACI, P.App, CRA, DAR, DAC, CMAR, CAR, MVA or FRI.

9. How does market value differ from the price for which a property may be sold?

• Price is what may be paid for a property while market value is The amount, in Canadian funds, for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing, where the buyer and seller have each acted knowledgably, prudently, and without pressure.

10. Discuss the three approaches to calculating the market value of a property and describe the most relevant approach for mortgage financing.

• There are three approaches that appraisers use to calculate the value of a property:
  • Income Approach: this approach is typically used for commercial income producing properties, using the property’s income to determine the market value
  • Cost Approach: this approach uses the cost of rebuilding the property less depreciation plus the value of the property. This is most widely used to confirm the value determined by the direct comparison approach as well as being used to determine the replacement value of a building for insurance purposes
  • Direct Comparison Approach: This approach uses the theory of substitution, comparing similar properties that have recently sold to the property being appraised. The Direct Comparison Approach is the most appropriate for mortgage financing and is therefore relied heavily upon in the appraisal report

11. Explain how adjustments are made in the direct comparison approach.

• If the comparable characteristic is superior to the subject, subtract from the comparable property’s value
• If the comparable characteristic is inferior to the subject, add to the comparable property’s value

12. Discuss the pros and cons of AVMs.

• AVMs can provide quick, basic property values, however they are prone to producing values that may or may not actually be representative of the subject property since an AVM cannot make adjustments for the physical condition of the property.

13. What is the most detailed type of appraisal report and how does it differ from the other two types of appraisal reports?

• Considered to offer the most information and therefore the highest level of protection for the Lender, the Full Appraisal is the appraisal of choice for Lenders who rely heavily on the property as security and less on the personal covenant of the Borrower.

14. When is the cost approach typically used?

• This is most widely used to confirm the value determined by the direct comparison approach as well as being used to determine the replacement value of a building for insurance purposes

15. What is a risk assessment tool?

• CMHC’s ‘emili’ and Sagen’s ‘MySagen’ are automated programs that will underwrite an application from a lender and make a decision to approve or decline mortgage default insurance. Part of these programs determines whether the property value, as disclosed in the mortgage application, is appropriate for the area in which the property resides. Since there is no physical inspection of the property, the same risks inherent in AVMs are applicable to these risk assessment tools.

Chapter 16: Choosing a Lender

1. List three examples of an MIE.

• Any three of the following:
  • MICs: Atrium, CMI, MCAN, AP Capital, Timbercreek Financial, etc.
  • Private lenders: individual investors and syndicated mortgages

2. List three examples of an MFC.

• Any three of the following:
  • First National, MCAP, Paradigm Quest, Merix, etc.

3. What is the broker channel?

• The broker channel refers to lenders that use mortgage brokerages to source business, either exclusively or in addition to sourcing business directly from consumers. Chartered banks, credit unions and MICs that have a broker channel will do both, while MFCs and private lenders will rely on mortgage brokerages exclusively.

4. What is a monoline lender?

• A monoline lender is a non-bank lender that does not take deposits, have store fronts, or provide other non-lending products. Its sole business is lending. Mono is a prefix that means one, so you can think of this as a one type of product, or line, lender. Monoline lenders are an example of an MFC.

5. What is the difference between a bank and credit union?

• There are several.

Chartered Banks

Description	Banks are the dominant players in the mortgage lending landscape in Canada. These depository institutions offer a complete variety of banking and financial services in person through their branch network and online. Bank customers can combine all finances under one institution. Under the Bank Act, banks are defined as: Schedule 1 (banks that are Canadian owned) Schedule 2 (branches or subsidiaries of foreign banks) Schedule 3 (foreign owned banks operating in Canada) A list of current Schedule 1, 2 and 3 banks is located in the Appendix
Regulation	Federally regulated by the Office of the Superintendent of Financial Institutions (OSFI)
Funding	All types of funding but mostly deposits
Regional Concentration	While they are widespread across the country, they tend to have greater shares in urban and metropolitan areas.
Examples	Bank of Montreal, Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), National Bank of Canada, Royal Bank, Toronto Dominion Bank, etc.

 

Credit Unions

Description	Credit unions (or caisses populaires in Quebec) are the second largest players in the mortgage lending landscape. They are depository institutions that have a “co-operative” business model, meaning they are owned by their members (every member has an equal vote). They offer an entire range of financial services in terms of banking, lending and investment products. They are generally known for more personalized customer service.
Regulation	Most are provincially regulated, with some moving to federal jurisdiction
Funding	All types of funding but mostly deposits
Regional Concentration	Tend to have a higher presence in non-metropolitan areas than other financial institutions.
Examples	Alterna Savings and Credit Union, Desjardins Ontario Credit Union, Conexus Credit Union, etc.

 

6. Discuss the differences between the prime and sub-prime mortgage market.

• A prime Borrower is typically an individual who has excellent credit, provable income and stable employment. This type of lending is often referred to as “, “A lending” or “Prime lending”, while those falling outside of these guidelines are served by the sub-prime mortgage market.

7. Discuss the differences between prime and sub-prime mortgages.

• The rates and fees for prime mortgages are typically lower than those of sub-prime mortgages. Sub-prime mortgages are typically easier to qualify for.

8. What factors can cause a Borrower to be considered sub-prime?

• The typical sub-prime Borrower is an individual who may have a combination of the following characteristics:
  • Current poor credit such as being behind in his or her payments on one or more credit cards, loans or other debts
  • Less than two years at his or her current job
  • Self-employed
  • Has a previous bankruptcy
  • Has previous poor credit with no re-established credit
  • Requires high LTV financing.

9. What type of Borrower will typically require a private mortgage?

• A client requiring a private mortgage will generally not qualify through a prime or sub-prime Lender. This client will normally have equity in his or her property and be able to obtain financing to a maximum of 85% LTV, depending on the area in which the property is located.

10. What information is typically found in a lender’s product sheet?

• The qualification requirements for each mortgage product.

11. What information is typically found in a lender’s rate sheet?

• The rates for each mortgage product as well as the necessary credit score and loan to value

12. What should a mortgage agent do if he or she is unsure if a lender will approve his or her client’s application?

• Contact the Lender’s BDM for clarification.

13. What factors must a Mortgage Agent consider when choosing a Lender?

• Loan to Value: Which lender(s) offer the ltv that the client requires?
• Income Verification: What income verification is required? Can the client provide the appropriate document(s)?
• Property Type: Does the client’s property type meet the lender’s requirements? I.e., if the client has a rental property, does the lender have a rental product?
• Credit Score: What are the lender’s requirements? Does the lender offer a different ltv based on credit scores? If so, does the client qualify?
• Terms: which lender offers the best terms for the client?
• Product: which Lender offers the right product for the client?
• Rates: which Lender offers the best rate based on the product chosen for the client?
• Speed: which Lender provides the quickest response to an application submission?
• Service: which Lender provides the best service to both Mortgage Agents and clients?
• Reputation: which Lender has the best overall reputation in the mortgage industry?
• Brokerage Preference: does the Mortgage Brokerage have a preference for or dictate which Lender should be used under certain circumstances?
• Finder’s Fees: if everything else is equal and two or more Lenders are appropriate for the client, which of those Lenders, if any, pays the highest commission?
• Loyalty Program: if everything else is equal and two or more Lenders are appropriate for the client, which of those Lenders, if any, offers a loyalty or points program?

14. Which factors are the least important for a Mortgage Agent when choosing a Lender?

• Finder’s Fees: if everything else is equal and two or more Lenders are appropriate for the client, which of those Lenders, if any, pays the highest commission?
• Loyalty Program: if everything else is equal and two or more Lenders are appropriate for the client, which of those Lenders, if any, offers a loyalty or points program?

15. What impact does a credit score have on the ability of a Borrower to access a Lender’s products?

• Most Lenders’ products have minimum credit score requirements and that must be met by the Borrower

Chapter 17: Submitting the Application and Obtaining a Commitment

1. List the typical items that must be explained in the notes section of an application and provide an example of each.

• The areas to review is Credit, Property and Employment

2. To how many Lenders should a Mortgage Agent submit an application at the same time?

• Only one.

3. Discuss the impact of funding ratios on a Mortgage Agent.

• If a Mortgage Agent doesn’t have appropriate funding ratios Lenders may decide to stop doing business with him or her.

4. What is the most common complaint by Underwriters when referring to mortgage applications?

• The lack of notes.

5. List ten pieces of information that are commonly found in a commitment letter.

• Applicants’ Names
• Property Address (address of the security)
• Mortgage Amount
• Interest Rate
• Payment Amount
• Payment Frequency
• Term
• Closing Date
• Prepayment Privileges
• Conditions of approval
• Terms of the approved mortgage (such as fees, appraisal requirements, etc.).

6. What types of documentation might a Commitment Letter require as proof of:

a) An employed individual’s income?

• Income and employment confirmation by way of recent pay stub or a letter from employer confirming income and length of employment on employer’s letterhead and the most recent income tax Notice of Assessment.

b) A self-employed individual’s income?

• A copy of three (3) years income tax Assessments and Financial Statements;

7. What options does a Mortgage Agent have if his or her client’s application is declined by the Lender?

• Contact the Underwriter to understand why the application was declined
• Contact the BDM if he or she disagrees with the decision
• Submit the application to another Lender

8. What are the three common programs used to submit applications electronically?

1. Filogix Expert, https://www.filogix.com/expert/filogix-expert
2. Newton Connectivity Systems, https://www.newton.ca/velocity
3. MortgageBoss, https://www.m3-tech.ca/boss

9. What type of license must an agent have to be able to submit an application to a private lender?

• Currently a mortgage agent license, with legislation changing to a level 2 license

10. What type of license must an agent have to be able to submit an application to an institutional lender?

• Currently a mortgage agent license, with legislation changing to a level 1 license

11. What is/are the form(s) that must be used when submitting an application to a private lender?

• A brokerage is required to provide detailed disclosure to lenders and investors involved in a mortgage transaction. The forms used for disclosure are:
  • Form 1 – Investor/Lender Disclosure Statement for Brokered Transactions
  • Form 1.1 – Investor/Lender Disclosure Statement for Brokered Transactions: Addendum for Construction and Development Loans
  • Form 1.2 – Investor/Lender Disclosure Statement for Brokered Transactions: Waiver for Reducing the Waiting Period
  • Form 2.1 – Renewal Form Waiver: To Reduce the Waiting Period
  • Form 3.0 – Information about Investor/Lender in a Non-Qualified Syndicated Mortgage
  • Form 3.1 – Suitability Assessment for Investor/Lender in a Non-Qualified Syndicated Mortgage
  • Form 3.2 – Disclosure Statement for Investor/Lender in a Non-Qualified Syndicated Mortgage
  • Form 3.2.1 – Supplemental Disclosure for Retail Investors in a High-risk Syndicated Mortgage

12. What is the minimum amount of time the investor/lender disclosure must be given to a potential investor before that investor can provide a commitment?

• No later than two business days before the earliest of the following events. This time period can be reduced to one business day if the investor/lender consents in “Form 1.2 – Investor/Lender Disclosure Statement for Brokered Transactions: Waiver for Reducing the Waiting Period”

13. Why is it necessary to double check the commitment letter?

• To ensure there are no errors

14. What is a conditional commitment?

• A commitment that has conditions that must be met before the lender will fund the mortgage

15. What are some common conditions?

• Common conditions include evidence of:
  • Employment and income
  • Down payment
  • Assets
  • Purchase and Sale Agreement, and
  • Other such documentation that may be required by the lender to prove statements made in the application

Chapter 18: Borrower Disclosure

True or False Questions

1. The role of the brokerage must be disclosed to the borrower.

• True – the Borrower must be informed who the brokerage is working for, the Borrower or the Lender or both

2. The nature of the relationship between the brokerage and the borrower must be included in the disclosure document to the borrower.

• False. The nature of the relationship between the brokerage and the lender must be disclosed in the borrower disclosure document.

3. A brokerage fee must be disclosed to the borrower and included in the cost of borrowing.

• True

4. To comply with the MBLAA and its Regulations a borrower disclosure document should state “refer to the lender’s commitment’ to disclose the lender’s terms and conditions.

• False – the document should include those terms and conditions

5. If a prospective mortgage was default insured by CMHC, the insurance fee would have to be included in the cost of borrowing.

• False – the cost of default insurance is not included in the cost of borrowing, as per Regulation 191/08 Cost of Borrowing and Disclosure to Borrowers.

6. Lawyer’s fees, excluding disbursements, must be included in the cost of borrowing.

• False – Disbursements must be included

7. It is not necessary to include an exact dollar amount in the cost of borrowing if the cost is unknown

• False – it must be shown in dollars and cents as well as a rate

8. The borrower disclosure must be given to the borrower at least 72 hours before they can enter into the mortgage

• False – it must be provided two business days, which may be waived in writing

9. APR stands for actual percentage rate

• False – it stands for annual percentage rate

10. PST on a default premium must be included in the cost of borrowing

• True – while the default premium is excluded, tax on the premium is included

Short Answer Questions

1. List the types of information (e.g., risks) that must be included in a borrower disclosure form.

• fees and payments associated with the mortgage
• the nature of the relationship between the brokerage and lender under the proposed mortgage
• the role of the brokerage
• the number of lenders the brokerage represented during the previous year
• any potential conflicts of interest
• the risks associated with the proposed mortgage
• the terms and conditions of the proposed mortgage
• estimated costs
• the cost of borrowing

2. Explain the timing requirements of providing disclosure to a borrower.

• Disclosure must be provided to the borrower at least two business days before the borrower is required to make any payment or enter into the mortgage agreement; however, the two business days may be waived if the borrower consents in writing and the disclosure is still made before the borrower is required to make any payment or enter into the mortgage agreement

3. List the specific costs that must be included when calculating the cost of borrowing.

• administrative charges including charges for services, transactions or any other activity in relation to the mortgage
• lawyer’s fees, including disbursements, for a lawyer hired by the lender and paid by the borrower (the majority of cases)
• insurance charges, excluding default insurance premiums for high-ratio mortgages
• appraisal, inspection or survey costs payable by the borrower, when required by the lender

4. How must the cost of borrowing be expressed in a borrower disclosure form?

• As both a percentage and in dollars and cents

5. If a cost is unknown, how must it be disclosed?

• The cost of borrowing must be disclosed as an annual percentage rate, section 8.1 of Regulation 191/08 states that it must also be disclosed in dollars and cents over the course of the term for all fixed and variable rate mortgages.

6. What is a conflict of interest?

• A potential conflict of interest is present when a brokerage, broker or agent has a direct or indirect interest in the mortgage being arranged resulting in a situation where the broker/agent must choose between his or her best interests and the interests of his or her borrower, investor or lender, as the case may be.

7. When does a brokerage have to disclose the name of any lender that it’s used to fund over 50% of the mortgages it brokered in the previous fiscal year?

• Section 19.3 of Regulation 188/08 states that upon request, “a brokerage shall disclose the following information in writing to a borrower:

1. Whether the brokerage itself was the lender for more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during the previous fiscal year.
2. The name of the lender, if any, with whom the brokerage arranged mortgages during the previous fiscal year if the mortgages constituted more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during the previous fiscal year. O. Reg. 188/08, s. 19 (3).”

8. There are three possible relationships that a brokerage may have with a borrower. List them.

1. Acting for the lender
2. Acting for the borrower
3. Acting for both the borrower and the lender

9. Discuss how brokerage fees are regulated by the MBLAA.

• They are not regulated by the MBLAA

10. What legislation prohibits the cost of borrowing from exceeding 60% APR?

• The Criminal Code of Canada. Section 347 of the Criminal Code makes it a criminal offense to charge in excess of 60%, which for a mortgage includes the fees and costs payable by the borrower in addition to the interest charged by the lender. This figure is represented in the borrower disclosure as the cost of borrowing.

Chapter19: Closing the Transaction

1. How much should a borrower have set aside for closing costs?

• Between 1.5% and 3% of the purchase price

2. Under what circumstances is PST included in the closing costs?

• When there is a mortgage default insurance premium

3. Under what circumstances is HST charged in the purchase of a property?

• On a new home, HST is charged; however, the builder may include it in the purchase price. If it is not included, it must be paid on closing. In addition, there is a HST rebate applicable to new homes, substantially renovated homes, and modular and mobile homes for which an application must be completed.

4. What tax is charged on the mortgage default insurance premium?

• PST

5. Explain the significance of the Acknowledgement and Direction in the closing process.

• This document allows the Lawyer to close the transaction electronically.

6. What purpose does the DRA serve?

• This document allows the Lawyers to handle the client’s documents and funds and by signing this document, both Lawyers agree to undertake their professional obligations as to the handling of these documents and funds.

7. In a title-insured transaction, who remits the insurance premium to the title insurer?

• The lawyer

8. Explain the IAD.

• The IAD is the interest adjustment date, which is the date that the interest adjustment payment is due.

9. What is a subsearch?

• A subsearch is an update of a previously completed full search, commonly performed on behalf of a purchaser by his or her lawyer immediately prior to registration of a transfer, and on behalf of mortgagees immediately prior to the registration of a mortgage.

10. What is the first step in the closing process?

• The purchaser’s lender is satisfied that all conditions have been met

11. Who chooses which lawyer to use to close the transaction?

• Either the borrower or the lender

12. What documents are included in the lender’s Instructions to Solicitor package?

• This package commonly contains:
  • A copy of the lender’s mortgage approval
  • The lender’s disclosure statement
  • Solicitor’s Final Report and Certificate of Title document for the lawyer to fill in
  • Solicitor’s Interim Report and Requisition for Funds document for the lawyer to fill in
  • Pre-authorized Debit Form
  • Acknowledgement and Direction
  • Instructions on the requirements for title-insured mortgages and non-title-insured mortgages
  • Requirements regarding property insurance, surveys, condominium units, proof of identity, etc.

13. If a lender prohibits a vendor take-back, what must a lawyer do if they become aware that one exists?

• the lawyer is required to inform the lender if they become aware of any secondary financing. This may cause the transaction to be cancelled.

14. Does the purchaser’s lawyer or the vendor’s lawyer register the discharge/cessation of mortgage?

• The vendor’s lawyer registers the discharge/cessation of mortgage, transfer/deed, charge/mortgage and advises the purchaser’s lawyer of registration

15. Which lawyer sends money to the original lender to discharge the current mortgage in a purchase transaction?

• The vendor’s lawyer releases funds and documents and sends money to the original lender to discharge the current mortgage (if applicable)

Chapter 20: Contract and Tort Law

1. What is a contract?

• Simply stated, a contract is a legally enforceable agreement made between two or more parties.

2. Explain the elements of a valid contract.

• The Offer: An offer is a promise made by one party to another to do something
• Acceptance of the Offer: Acceptance is a promise to accept the offer.
• Intention to Create a Legal Relationship: The parties entering into an agreement must intend to form a legally binding agreement.
• The Legal Capacity to Enter into a Contract: Parties must be approximately equivalent in bargaining power and must meet minimum standards in regards to maturity and intellect to be deemed to have the legal capacity to enter into a contract.
• Legality Requirements: Every contract must meet certain legality requirements. It must have a legal purpose. To be considered legal, this purpose cannot violate any law, statute, or public policy.
• Exchange of Consideration: Although there are exceptions, parties to a contract must agree to exchange something of value in return for their promises.

3. If misrepresentation exists, what option is available?

• The contract may be rescinded, meaning that the contract will be cancelled and the parties will be returned to their pre-contract states.

4. Discuss the differences between duress and undue influence.

• Duress is defined as a threat or act, whether aimed at personal property or a person that induces or causes another person to perform some act against his or her will, while undue influence can be described as any pressure or act of persuasion, short of physical force and therefore not meeting the definition of duress, that overcomes an individual’s judgment and free will.

5. Under the doctrine of privity of contract, who can enforce the terms and conditions of a contract?

• Only the parties to a contract may enforce it.

6. What condition precedent is most common in real estate transactions?

• A condition for financing which allows the Borrower to cancel the contract if he or she can not obtain mortgage financing.

7. Larry owns a car that is being stored in a self-storage unit. If Bob and Larry enter into a contract for Bob to purchase Larry’s car but before Bob can take possession of the car the self-storage unit is destroyed by a fire, and Larry’s car along with it, what will happen to this contract and why?

• The contract will be voided due to Frustration.

8. Abena has entered into a valid purchase and sale agreement to purchase a home from David. David decides not to sell Abena the home and instead enters into another agreement of purchase and sale with Bob. What options does Abena have?

• Abena may obtain an injunction to prevent the sale to Bob and sue for specific performance to force David to sell her the house.

9. A contract of employment between a Mortgage Agent and a Mortgage Brokerage contains a clause that states, “This contract may be terminated by either party by providing thirty days’ notice to the other party”. Of what is this an example?

• This is an example of “discharge by right” which occurs when there is a clause written into a contract that provides one or both parties with the option to cancel the contract before performance. Such clauses include an option to terminate, a condition precedent and a condition subsequent.

10. Dominic is twelve and in the neighbourhood in which he lives he is known as the grass cutter. He wishes to get Mr. Malikson, another neighbour, as a customer so on Monday cuts his lawn without being asked, and leaves a note on Mr. Malikson’s front door. Mr. Malikson comes home from work on Monday night, sees the lawn, and is extremely happy with the quality of Dominic’s work. He calls Dominic and tells him that on Friday he will give him ten dollars for cutting his lawn. On Friday Dominic arrives at Mr. Malikson’s home and asks for the ten dollars, but Mr. Malikson refuses to pay, telling Dominic that when he saw the lawn on Tuesday he realized it was not as good a job as he had thought on Monday so he changed his mind about paying Dominic. In this situation, is there a contract and can Dominic enforce the promise to pay?

• No, there is no contract because there was no offer and acceptance before Dominic had cut the lawn. Mr. Malikson’s promise to pay was simply that: a promise, and not a contract.

11. What is a tort?

• A wrongful act that causes one person to suffer loss or harm.

12. What is an example of negligent misrepresentation in the mortgage industry?

• This may occur if, for example, a mortgage agent provides their opinion on a legal matter when they are not a lawyer, and their client suffers a loss.

13. What is the difference between damages awarded in a contract dispute, and damages awarded due to a tort?

• In torts, damages are an award of money by the court, designed to put the plaintiff back into the position they were before the wrongdoing occurred. This is different from damages in contract law, which are designed to put the innocent party in the position they would have been had the contract been performed.

14. What is the difference between punitive and aggravated damages?

• Punitive damages: These are damages when the wrongdoing is so egregious that a court feels it necessary to not only compensate the plaintiff but punish the defendant as well.
• Aggravated damages: These damages are awarded when the wrongdoing is so egregious that it surpasses the test for punitive damages. In this case the court may award aggravated damages not to punish the defendant, but to compensate the plaintiff even further.

15. How does intimidation differ from duress?

• Intimidation occurs when a defendant threatens to commit an unlawful act to force the plaintiff to do something against their will. This can be any unlawful act. Duress is a threat or act, whether aimed at personal property or a person that induces or causes another person to perform some act against their will.

Chapter 21: Mortgage Remedies

1. What constitutes default by the Borrower?

• Failure to perform his or her mortgage obligations, including any of the covenants contained in the Standard Charge Terms.

2. What process is the most common remedy used by Lenders in Ontario when a Borrower defaults on his or her mortgage obligations?

• The Power of Sale process.

3. What Act outlines the process that must be followed under a Power of Sale?

• The Mortgages Act, R.S.O. 1990, c.M.40.

4. How long after a Borrower defaults on his or her mortgage payment can a Lender begin the Power of Sale process?

• 15 days.

5. Describe, in your own words, the Power of Sale process.

• The Borrower defaults
• The Lender serves notice
• The Borrower has a redemption period
• The Lender takes possession of the property
• The Lender sells the property

6. How does a Foreclosure differ from a Power of Sale?

• In a Power of Sale the Borrower receives any profit from the sale and is liable for any shortfall. In a Foreclosure the Borrower’s rights and obligations to the property are terminated.

7. What provinces currently use a Power of Sale process?

• Newfoundland and Labrador
• New Brunswick
• Prince Edward Island, and
• Ontario

8. What documents must a Lender provide a Realtor when selling a property under Power of Sale?

• The Lender must provide the Realtor with a Certificate of Power of Sale, proving that the Lender has the legal right to sell the property. A schedule must also be attached to the Agreement of Purchase and Sale, entitled the Seller Selling Under Power of Sale.

9. List the order in which proceeds of a sale under a Power of Sale are distributed.

• In payment of all expenses involved in the sale of the property, including the Realtor’s fee, legal fees, etc.
• In payment of all interest and costs associated with the mortgage involved in the Power of Sale
• In payment of the principal balance outstanding on the mortgage involved in the Power of Sale
• In payment to any additional encumbrancers such as mortgage holders and others who had an interest in the property
• Payment of rental deposits made by any tenants, if applicable
• Any monies remaining must be paid to the mortgagor

10. Other than a Power of Sale or Foreclosure, what other steps might a Lender first use to recover monies owing by a defaulting Borrower?

• While a Power of Sale is the most common remedy in Ontario and can be commenced after 15 days of default, most Lenders will not seek this remedy immediately. In most cases the process will begin with a letter sent from the Lender’s collection department advising the Borrower of the default and requesting that the missed payment be sent to the Lender immediately. The Lender may also require the Borrower to pay a non-sufficient funds (NSF) fee and may also require the Borrower to pay an administrative fee.
• If this letter does not obtain the desired results, the Lender may then use a Demand Letter, which is a letter sent from the Lender’s Lawyer demanding the payment of the outstanding amount. If neither of these remedies is successful, the Lender will then proceed with the Power of Sale process.
• Additional remedies include:
  • Quit Claim
  • Appointment of a Receiver
  • Assignment of rents
  • Action on the Covenant

11. What is the difference between a judicial sale and a foreclosure?

• A judicial sale and foreclosure are similar in nature. The main difference between a judicial sale and a foreclosure is that the courts are handling the sale in a judicial sale, whereas in a foreclosure, the lender obtains ownership of the property and sells it.

12. What provinces use the foreclosure process?

• Alberta
• British Columbia
• Manitoba
• Nova Scotia
• Quebec, and
• Saskatchewan

13. What is a quit claim?

• A transfer by the borrower of ownership to the lender in exchange for releasing the borrower from any further liability.

14. What is the difference between an appointment of a receiver and an assignment of rents?

• Appointment of a Receiver: Typically used in commercial properties where there is business or rental income generated by the property, the lender applies to the Court for appointment of a receiver. Once appointed, the receiver will collect and administer the income generated by the commercial property, paying expenses, including the mortgage payments.
• Assignment of rents: A clause written into the Standard Charge Terms, allows the lender to collect rent form tenants of the mortgage property, while the mortgage is in default

15. When can an action on the covenant be commenced?

• This refers to a lender’s right to immediately sue a borrower for the missed mortgage payment

Chapter 22: Mortgage Fraud

1. Define mortgage fraud.

• Mortgage fraud is the deliberate omission of information, use of misstatements or misrepresentations to obtain, purchase, or fund a mortgage loan.

2. What factors contribute to mortgage fraud?

• The increased usage of technology in the mortgage industry has allowed those committing mortgage fraud to take advantage of legitimate initiatives such as AVMs, Risk Assessment Tools, electronic registration of land titles documents and to communicate without face-to-face meetings. The mortgage market’s competitiveness is also a factor. There are more Lenders in today’s mortgage market than at any other time in Ontario’s history and those Lenders are competing for Borrowers. Due diligence is often sacrificed for faster approvals as Lenders cope with the potential of losing customers to other Lenders who provide faster service.

3. Explain the difference between fraud for criminal activities and fraud for profit.

• According to the Criminal Intelligence Service Canada (CISC), mortgage fraud may be committed to further other criminal activities such as the financing of marihuana grow operations, drug labs, and money laundering. Many crime organizations and individuals will commit mortgage fraud to obtain the proceeds of the mortgage without the intent to repay the loan.

4. In your opinion, is fraud for shelter harmful? If so, to whom and why?

• Fraud for shelter is one of the most common forms of fraud in the mortgage industry. This type of fraud occurs when an individual wishes to purchase a home in which to reside with no intent to abscond with mortgage funds or fraudulently sell the property by misstating or misrepresenting his or her status. In most cases this type of fraud involves inflation of the purchaser’s income to obtain mortgage financing. This can be harmful to the Borrower since he or she may not be able to afford the mortgage, leading to financial hardship. It can harm the Lender due to mortgage arrears and defaulting loans, and the Mortgage Brokerage industry as a whole since Lenders may scale back these products if they show a high vulnerability to fraud.

5. What is the most common factual misstatement made under fraud for shelter, according to Fannie Mae?

• Misstatements about liabilities, at 71%.

6. What are the impacts of mortgage fraud on industry participants?

• Psychological, reputational and economic.

7. What steps can a mortgage agent take to assist in mortgage fraud prevention?

• The steps include identity verification, employment and income verification, occupancy verification, credit and property verification.

8. List and describe the typical fraud warning signs.

• Identity
  • The applicant cannot provide any photo identification, or says that he or she will provide photo identification but consistently does not. In addition the quality of the identification must be considered, especially if it does not appear to be genuine.
  • If the applicants are not available to meet or if one applicant is never present.

• Employment and Income
  • The applicant’s job letter contains inconsistencies or errors. For example, if it does not match pay stubs or what the applicant has disclosed about the amount of income, the time employed or his or her job title or has spelling or grammatical errors.
  • If, when verifying the applicant’s employment, the Mortgage Agent cannot find a directory listing for the business, or the business contact number (as provided or as stated on the job letter) is a residential number or cellular number. This information can be obtained by conducting a business phone number search or reverse directory lookup using www.canada411.com or other Internet services.
  • The position and/or income is inconsistent with the applicant’s age.
• Assets
  • The applicant states that he or she has significant income but little or no assets.
• Meeting Location
  • If the client insists on meeting at a location other than the location of the property to be mortgaged. This may simply be based on convenience, and if the Mortgage Agent’s process includes meeting in his or her office this may not be considered a warning sign. The Mortgage Agent should request a copy of a recent utility bill with the applicant’s address and name.
• Contact Information
  • If the applicant only has a cellular phone for contact purposes (although more consumers are using cellular phones as their homes phone).

9. How does the Land Titles Assurance Fund assist homeowners who are victims of fraud?

• The LTAF is designed to compensate individuals who have suffered financial losses due to errors or omissions in the land registration system and real estate fraud.

10. What ways can consumers protect themselves from fraud?

• Title Insurance
  • Consumers should obtain title insurance on every property that they buy and get a title insurance for any property that they currently own. This can protect against future acts of title or mortgage fraud.

• Document Destruction
  • Consumers should destroy all bills and other personally identifiable documents by using a paper shredder instead of simply throwing them in the garbage. This can prevent criminals from obtaining this information by going through a consumer’s garbage. It is now common for criminals to take several containers of garbage from consumers’ homes to a different location to search for documents containing personal identity information which can then be used to impersonate the consumer.

• Home Inspection
  • A homebuyer purchasing a resale home should have it inspected. This can prevent the buyer from purchasing a house that was used as a grow op or a drug lab.

• ATMs
  • Consumers should strive to withdraw cash only from their bank’s ATMs. There have been several circumstances where ATMs in small gas stations or other stores have been compromised, allowing the criminal to record debit card and PIN information.

• PIN Numbers
  • Consumers should always protect their PIN numbers, including debit card and credit card numbers to prevent unauthorized use of these cards.

• Credit Reports
  • Consumers should pull their own credit report every three to six months to ensure that there are no inquiries or debts that the consumer has not authorized. This can be done online through Equifax and Transunion.

• Online Shopping
  • Consumers should only use online retailers that they have knowledge of and/or use secure, encrypted processing of payment information. This can be confirmed in many instances through the web browser by way of a lock icon.

• Phone Solicitations
  • Consumers should never give their credit card information to unsolicited callers. If it is for a charity the consumer should obtain a number that he or she can verify and call the charity back, or have the charity send a payment request by mail. Many criminals will impersonate charities or other groups to obtain personal information by phone.

• Internet Phishing
  • Phishing is an Internet scam whereby the criminal sends an email to the consumer requesting personal information. The email may appear to be from the consumer’s bank or other company such as Amazon or ebay. The technology can produce emails and websites that look identical to the actual company’s. However, respectable companies will not request this information by email.

• SIN Card
  • Consumers should not carry their social insurance number card with them as this can be stolen and used for identity theft. There are only limited situations where a SIN card is required, and it is typically not required on a daily basis.

• Passwords
  • Consumers should use passwords that are unique, excluding birth dates and other common forms of passwords. Consumers should keep this information, if written, locked in a secure place.

11. What steps have the default insurers taken to prevent mortgage fraud?

• Default insurers have implemented strategies to prevent fraud, including publications and seminars on fraud prevention.

12. What steps has FSRA taken to assist the industry in preventing fraud?

• FSRA has taken several steps to assist industry in preventing fraud, including updates to licensing and continuing education course curriculum, guidance to industry on regulations, and creation of industry checklists.

13. What resources has the MBRCC developed to assist the industry in preventing fraud?

• The MBRCC has developed anti-fraud resources for the mortgage industry. These resources are located at:
• https://www.mbrcc.ca/Anti-FraudResourcesforIndustry and include the following publications:

• Brokers’ Responsibilities to Prevent Mortgage Fraud
• Checklist for Detecting and Preventing Mortgage Fraud
• The Consequences of Mortgage Fraud

14. List five warning signs of mortgage fraud with regards to an applicant’s assets.

• Any five of the following:
• The applicant states that they have significant income but little or no assets.
• Down payment source is other than deposits (gift, sale of personal property)
• Applicant’s salary doesn’t support savings on deposit
• Applicant doesn’t utilize traditional banking institutions
• Pattern of loyalty to financial institutions other than the subject lender
• Balances are greater than the Canadian DepositInsurance Corporation (CDIC) insured limits
• High asset applicant’s investments are not diversified
• Excessive balance maintained in checking account
• Dates of bank statements are unusual or out of sequence
• Recently deposited funds without a plausible paper-trail or explanation
• Bank account ownership includes unknown parties
• Balances verified as even dollar amounts
• Source of earnest/deposit money is not apparent
• Earnest/deposit money isn’t reflected in account withdrawals
• Earnest/deposit money is from a bank or account with no relationship to the applicant
• Bank statements do not reflect deposits consistent with income

15. What steps has OSFI taken to ensure its regulated entities prevent fraud?

• OSFI, through guidelines such as B-20 and B-21, outlines steps that its regulated entities must take to prevent fraud, including identity verification, maintaining adequate mechanisms for detecting and preventing fraud or misrepresentation in automated underwriting systems, income verification and employment status of the borrower.

Chapter 23: Ethics and Mortgage Brokering

1. Define the term “ethics”

• Ethics can be defined as the process of applying the core values of the mortgage industry to a practitioner’s daily conduct.

2. What are the core values of the mortgage industry?

• Honesty, integrity, acting in the best interests of the client and the industry, and complying with the law and codes of conduct are the core values of the industry.

3. What are the steps in the Decision Making Model?

1. What are the facts?

Before one can come to a decision whether an action is ethical he or she must be relatively certain that all of the facts have been obtained. Failure to do so can result in a faulty decision.

2. Identify the potential solutions

Next, it is necessary to list the possible solutions to the problem. Once all of the possible solutions are listed, one can apply the next step in the process. It’s important to note that if you are too involved in a situation you may not be able to clearly see all of the potential solutions. In this instance it may be necessary to obtain the input of others, such as a co-worker or family member, to add some clarity and objectivity to the discussion.

3. Apply the core value: Honesty

Which potential solutions support this core value? To answer this question apply this core value to each of the solutions from step 2. Do any of the solutions contravene this value? If so, it is not necessary to proceed further; that solution is clearly unethical. Move to the test for integrity with the remaining solutions.

4. Apply the core value: Integrity

Does the potential solution compromise your integrity? In other words, would this solution be inconsistent with how you live and what you believe in? If the answer is yes you must deem this solution unethical. Move to the test of acting in the best interests of your client with the remaining solutions.

5. Apply the core value: Act in the best interests of your client

To be able to apply this core value it is necessary to have performed a detailed needs assessment to determine exactly what his or her needs are. Does the potential solution result in an action that is in the best interests of your client? If it does not, you must discard that solution. The remaining solutions can be taken to the next test.

6. Apply the core value: Act in the best interests of the industry

Does the potential solution reflect well on the industry? Acting in the best interests of the industry does not necessarily mean that the solution must have a positive impact on the industry, such as raising public awareness of the benefits of using a broker, but that it must not act against the best interests of the industry. Even if a potential solution has made it this far, the question would then be: is this solution detrimental to the industry? If the answer is yes, the solution must be discarded. If not, move on to the final core value test.

7. Apply the core value: Comply with law and codes of conduct

Finally, this core value is applied to the remaining solutions. If any contravene this core value they must be discarded.

8. Choose the best solution

Any solutions now available to you can be reasonably assumed to be ethical. If you have more than one solution still available, the test of which provides the greatest good can be applied. In most cases, however, only one solution will remain.

9. Review the process

Once you’ve reached a decision it is important to review the process step by step to ensure that your tests were applied objectively and without bias. It may also be helpful to discuss the process with someone you trust, as long as the discussion does not disclose confidential information, or information that might damage another’s reputation.

4. Why should an individual review the Decision Making Model process before making his or her final decision?

• To ensure that he or she has thought of all possibilities and that his or her final decision was arrived at objectively and free of bias.

5. What are some options for an individual to ensure that he or she has obtained all of the facts?

• Do additional research if applicable, ask family, friends and colleagues.

6. What should an individual do if he or she can’t obtain all of the facts?

• He or she should make every effort to obtain all of the facts and should refrain from making a final decision until he or she is certain that all of the facts, or as many facts as possible, have been considered.

7. If two or more possible solutions make it to the final step, how would you choose the best option?

• If two or more possible solutions make it to the final step, the decision maker should consider the choice that makes the most positive impact.

8. List your core values and compare them to the industry’s core values. How does the Decision Making Model that you would use for your personal decisions differ from those of your business decisions, if at all?

• This question requires personal introspection.

9. Is it possible for an individual to determine all of the potential solutions to a scenario? If not, how else might he or she develop additional solutions?

• Depending on the situation an individual might not be able to see all solutions clearly. If this is the case others should be consulted to determine if there are any solutions that may have been excluded.

10. Ask your friends or family members not in the mortgage industry what they believe the core values of the industry are. Write them down and compare them to those listed in this chapter. What did you find? Is the perception of the mortgage industry similar to this chapter’s core values or different? If different, how might the industry change this perception?

• This question requires personal research and will differ from person to person.

11. What is the MBRCC?

• The MBRCC is a forum for Canadian mortgage broker regulators to collaborate and promote regulatory consistency to serve the public interest.

12. If a code of conduct found in the MBRCC Code of Conduct for the Mortgage Brokering Sector is not as strict as what is required by the MBLAA, what should a mortgage agent do?

• Any stricter or more specific requirements, rules or standards of conduct take priority over the Code.

13. What is the purpose of the MBRCC Code of Conduct for the Mortgage Brokering Sector?

• The MBRCC developed this plain-language Code of Conduct (Code) to promote high standards of conduct to protect consumers of mortgage brokering services.

14. Does acting in the best interests of the industry mean that your decision must have a positive impact on the industry?

• Acting in the best interests of the industry does not necessarily mean that the solution must have a positive impact on the industry, such as raising public awareness of the benefits of using a broker, but that it must not act against the best interests of the industry.

15. Your client wants a mortgage that they cannot afford. Would arranging this mortgage be acting in their best interests? Why or why not?

• No, because if it is not affordable it is not in the borrower’s best interests.