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O. Reg. 96/18: MORTGAGE BROKERAGES: STANDARDS OF PRACTICE

filed March 8, 2018 under Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29

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ontario regulation 96/18

made under the

Mortgage Brokerages, Lenders and Administrators Act, 2006

Made: March 7, 2018
Filed: March 8, 2018
Published on e-Laws: March 9, 2018
Printed in The Ontario Gazette: March 24, 2018

Amending O. Reg. 188/08

(MORTGAGE BROKERAGES: STANDARDS OF PRACTICE)

1. (1) Section 1 of Ontario Regulation 188/08 is amended by adding the following definitions:

“qualified syndicated mortgage” has the meaning set out in subsection (2); (“hypothèque consortiale admissible”)

“syndicated mortgage” means a mortgage that secures a debt obligation in respect of which two or more persons are direct or indirect lenders or investors; (“hypothèque consortiale”)

(2) Section 1 of the Regulation is amended by adding the following subsections:

(2) Subject to subsection (3), a qualified syndicated mortgage is a syndicated mortgage that meets all of the following criteria:

1. It is negotiated or arranged through a mortgage brokerage.

2. It secures a debt obligation on property that,

i. is used primarily for residential purposes,

ii. includes no more than a total of four units, and

iii. if used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes.

3. 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.

4. It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage.

5. The rate of interest payable under it is equal to the rate of interest payable under the debt obligation.

(3) A syndicated mortgage that secures a debt obligation incurred for the construction or development of property is not a qualified syndicated mortgage.

2. Section 3 of the Regulation is revoked and the following substituted:

Duties re syndicated mortgages

3. A brokerage owes to each of the lenders and investors in a syndicated mortgage the duties imposed by this Regulation in respect of the investment or loan.

3. Section 9 of the Regulation is amended by adding the following subsections:

(3) If the complaint relates to a syndicated mortgage other than a qualified syndicated mortgage, the brokerage shall, within 10 business days after receiving the complaint, give the Superintendent a copy of the complaint and the brokerage’s response to it.

(4) The Superintendent may extend the deadline referred to in subsection (3) if,

(a) the brokerage requests the extension before the deadline has passed; and

(b) the Superintendent is satisfied that there are reasonable grounds for the extension.

4. Section 24 of the Regulation is amended by adding the following subsection:

(3) Without limiting the application of subsection (1), a brokerage shall consider the results of the written suitability assessment prepared under section 24.1 in determining whether an investment in, or loan in respect of, a syndicated mortgage other than a qualified syndicated mortgage is suitable for a lender or investor.

5. The Regulation is amended by adding the following sections:

Duty re suitability of syndicated mortgage for lender or investor

24.1 (1) Before presenting an investment in, or loan in respect of, a syndicated mortgage for the consideration of a lender or investor, a brokerage shall,

(a) collect the following information from the lender or investor and take reasonable steps to verify its accuracy:

(i) the lender or investor’s name,

(ii) the lender or investor’s age, marital status and number of dependents,

(iii) the lender or investor’s financial circumstances,

(iv) the lender or investor’s investment needs and objectives,

(v) the lender or investor’s risk tolerance,

(vi) the lender or investor’s level of financial knowledge,

(vii) the lender or investor’s investment experience,

(viii) the lender or investor’s relationship with the brokerage, if any,

(ix) any other information required to prepare the lender or investor information form approved by the Superintendent;

(b) use the collected information to prepare the lender or investor information form approved by the Superintendent and ensure that the lender or investor signs it to attest to its accuracy;

(c) provide a copy of the signed lender or investor information form to the lender or investor; and

(d) prepare a written suitability assessment using the form approved by the Superintendent and provide a copy of it to the lender or investor.

(2) Subsection (1) does not apply to a qualified syndicated mortgage.

Syndicated mortgage — limits

24.2 (1) A brokerage shall not negotiate or arrange an investment in, or loan in respect of, a syndicated mortgage for a lender or investor who is an individual if the brokerage has reason to believe that the investment or loan, alone or in combination with any other investment in, or loan in respect of, a syndicated mortgage that the individual has made in the previous 12 months, would result in the individual investing or lending more than $60,000 in or with respect to syndicated mortgages within that 12-month period.

(2) Subsection (1) does not apply if the lender or investor is a member of a designated class of lenders and investors.

(3) Subsection (1) does not apply to a qualified syndicated mortgage.

(4) In determining whether the $60,000 limit has been exceeded in the previous 12 months for the purposes of subsection (1), the brokerage shall not count any investments or loans the individual entered into prior to July 1, 2018.

6. Section 31 of the Regulation is amended by adding the following subsection:

(2.1) Subsection (1) does not apply to a syndicated mortgage other than a qualified syndicated mortgage.

7. The Regulation is amended by adding the following section:

Same, syndicated mortgages

31.1 (1) A brokerage shall give each lender or investor the following information and documents with respect to an investment in, or loan in respect of, a syndicated mortgage other than a qualified syndicated mortgage that the brokerage presents for consideration to the lender or investor:

1. A completed syndicated mortgage disclosure form, in a form approved by the Superintendent, signed by a broker.

2. A copy of an appraisal of the property relating to the syndicated mortgage that satisfies the following criteria:

i. It was prepared within 12 months before the day the syndicated mortgage disclosure form was provided to the lender or investor.

ii. It was prepared by a member of the Appraisal Institute of Canada who is independent, as described in subsection (2), and who holds the designation of Accredited Appraiser Canadian Institute.

iii. It was prepared in accordance with the Canadian Uniform Standards of Professional Appraisal Practice published by the Appraisal Institute of Canada, as amended from time to time.

iv. It provides an estimated market value of the property relating to the syndicated mortgage that reflects its condition and stage of development as of the day of the inspection or any day within 60 days after the day of the inspection.

v. The estimated value of the property referred to in subparagraph iv must not depend or rely on,

A. assumptions about proposed or future development of the property,

B. assumptions about proposed or future improvements to the property, or

C. any other condition that is not in existence as of the date selected for the estimated market value of the property.

3. If the investment is in, or the loan is in respect of, an existing mortgage, a copy of the mortgage instrument.

4. If the investment is in, or the loan is in respect of, an existing mortgage, a statement indicating whether the mortgage is in arrears and whether any mortgage payments are delayed or owing.

5. A copy of the certificate of mortgage interest, the assignment of the mortgage or any other document that provides evidence of the investment or loan.

6. If an agreement of purchase and sale in respect of the property relating to the syndicated mortgage has been entered into in the preceding 12 months and is available to the brokerage, a copy of the agreement of purchase and sale.

7. Documentary evidence of the borrower’s ability to meet the mortgage payments.

8. A copy of the application for the mortgage and of any document submitted in support of the application.

9. If the investment is in, or if the loan is in respect of, a new mortgage, documentary evidence of any down payment made by the borrower for the purchase of the property relating to the syndicated mortgage.

10. A copy of any administration agreement that is applicable to the lender or investor.

11. A copy of any trust agreement that is applicable to the lender or investor.

12. A copy of the commitment letter or document setting out the terms of the lender’s or investor’s commitment to advance funds to the borrower.

13. The information required to be given under sections 21, 22 and 23.

14. A copy of any agreement that the lender or investor may be asked to enter into with the brokerage.

15. If the borrower is not an individual, one of the following:

i. Both,

A. the borrower’s financial statements for its most recently completed financial year that ended more than 120 days before the day the syndicated mortgage disclosure form was provided to the lender or investor and for the financial year immediately preceding that financial year, and

B. the borrower’s interim financial statements from the day after the end of the most recently completed financial year referred to in subsubparagraph A to the end of the most recent interim period that ended more than 60 days before the day the syndicated mortgage disclosure form was provided to the lender or investor.

ii. The borrower’s financial statements for its most recently completed financial year that ended 120 days or less before the day the syndicated mortgage disclosure form was provided to the lender or investor and for the financial year immediately preceding that financial year.

iii. If the borrower’s first financial year ended more than 120 days before the day the syndicated mortgage disclosure form was provided to the lender or investor and the borrower’s second financial year did not end before that day,

A. the borrower’s audited financial statements for the first financial year, and

B. the borrower’s interim financial statements from the day after the end of the borrower’s first financial year to the end of the most recent interim period that ended more than 60 days before the day the syndicated mortgage disclosure form was provided to the lender or investor.

iv. If the borrower’s first financial year did not end before the day the syndicated mortgage disclosure form was provided to the lender or investor or ended 120 days or less before that day, the borrower’s audited financial statements for the period from its inception to a date that is 120 days or less before the day the syndicated mortgage disclosure form was provided to the lender or investor.

16. All other information, in writing, that a lender or investor of ordinary prudence would consider to be material to a decision about whether to lend money on the security of the property relating to the syndicated mortgage or to invest in the syndicated mortgage.

(2) For the purposes of subparagraph 2 ii of subsection (1), a member of the Appraisal Institute of Canada is independent if there are no circumstances that, in the opinion of a reasonable person aware of all relevant facts, could interfere with the member’s judgment regarding the preparation of the appraisal.

(3) The following rules apply to the financial statements required by paragraph 15 of subsection (1):

1. The financial statements must be prepared in accordance with generally accepted accounting principles applicable to publicly accountable enterprises, the primary source of which is the CPA Canada Handbook - Accounting.

2. The most recently completed financial year referred to subparagraph i or ii of that paragraph must be audited.

3. For greater certainty, the brokerage may provide an audited version of a financial statement even if that paragraph does not require it to be audited.

4. Any audit of the financial statements must be conducted in accordance with generally accepted auditing standards, the primary source of which is the CPA Canada Handbook - Assurance.

5. Any unaudited financial statements must clearly be labelled as “unaudited”.

Meaning of interim period

(4) In paragraph 15 of subsection (1),

“interim period” means a period that ends three, six or nine months after the end of the borrower’s financial year.

8. Section 36 of the Regulation is amended by adding the following subsection:

(3) Subsection (2) does not apply to the disclosure of information with respect to syndicated mortgages under section 31.1.

9. Subsection 40 (3) of the Regulation is amended by adding the following paragraphs:

9. The maintenance and retention of records, including for the purpose of ensuring compliance with sections 46 to 48.

10. The verification of a lender’s or investor’s eligibility to invest in, or make a loan in respect of, a syndicated mortgage other than a qualified syndicated mortgage.

Commencement

10. This Regulation comes into force on the later of July 1, 2018 and the day it is filed.

 

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