Part 2 of this article covered the issues surrounding possible for default and collateral. Mortgage brokers when gathering information for the lenders are often questioned, “Why do you need to know that?”
Mortgage brokers in BC are governed by the Financial Institutions Commission – FICOM. FICOM is the regulatory body that governs the activities and practices of mortgage brokers and lenders. They have a special interest in the area of second mortgage lending because of the history of this part of the industry. In the 90’s, a company called Aaron Acceptance Corporation bilked investors for millions of dollars. The money invested in the corporation was used to fund the extravagant lifestyles of the principals. In the end, a meaningful amount of money had disappeared. by out the period that Aaron was cooking the books FICOM was the regulatory body.
After the Aaron debacle, the house was cleaned at FICOM and a whole new set of rules was put into place for lenders and brokers operating in BC. FICOM operates with ruthless efficiency. An example of this is were a prospective mortgage sub-broker falsified his application and the brokerage, which was unaware of the false information, was fined $25,000. Clearly, there is a new sheriff in town.
The tightening of the regulator has made the operating agreements between the lender and brokers tighter and with stronger language. It is this new regime that has allowed the Canadian market to avoid the excesses of the US market.
Beneath the calm waters of the usual mortgage negotiation are the hidden snares lying in wait. What has arisen over the past ten years is more applications were identity theft and money laundering are involved. The mortgage broker must ensure that all information presented to the lender is true. The underwriting guidelines that must be met are clear and woe to the broker who tries to step outside the lines.
Recently, there was a case where a mortgage broker provided false income information on hundreds of successful applications. The buyers made all of their payments and no mortgages went into default. But the ridge in the scheme was that the houses were being used for grow ops…all of them. The mortgages were foreclosed and the remaining value went to proceeds of crime.
It can be difficult for normal average Canadians to understand that the lenders and brokers must protect themselves from false information. I have seen clients become very upset by the requests for confirmation of funds, supplies of income, etc. Please be kind to your broker when he or she asks for information, they are required too. It will make the time of action of securing a second mortgage faster and more pleasant.