With the current crisis in the U.S. mortgage market still stirring up the industry south of the border, here at home Ontario is in the midst of making sweeping changes to its mortgage broker legislation. Some in the industry say it’s about time.

“The legislation is finally catching up to the industry,” said Joe Pinheiro, vice-president of sales at Mortgage Alliance Co. The legislation he is referring to is the new Mortgage Brokerages, Lenders and Administrators Act, which will go into effect on July 1.

Pinheiro says a lot of the blame for the subprime mess in the U.S. might fall on mortgage brokers’ shoulders, after reports of predatory selling styles and issues around disclosure. “This goes a long way toward increasing the confidence of the Ontario mortgage consumer,” he said of the new rules in the province.

The new legislation is the first major re-write of the rules in about 40 years, according to Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). “It will be a tremendous change for the industry,” said Murphy, in an interview at a CAAMP trade show in the Toronto area this morning. “We think overall it will raise the bar of professionalism in the industry.”

According to Murphy, people who use the mortgage brokers channel to find their mortgage—which account for about 30% in Ontario—will often go through an agent, not necessarily their broker. And there are many more agents than brokers. “So,” he said. “It’s important that the overall standards and educational requirements for them also be raised.”

In the past mortgage agents were only registered, not licensed and they did not have to meet educational requirements for the process. Under the new rules, the most substantial change is that agents will have to be both licensed and appropriately educated.

The Financial Services Commission of Ontario (FSCO), the regulator for the industry, has opened up an advance application period for new licenses. During this time, mortgage brokerages can apply for the new license and ensure that its brokers and agents meet all the new requirements before the rules hit the pavement on July 1.

For instance, under the new regime every brokerage house must have a principal broker, who will act as the firm’s chief compliance officer. Agents who have been working in the industry for at least 2 years and those who have completed an approved course are exempt from the education requirements and can move easily through the application process to becoming a licensed agent.

The government has approved three organizations to provide a transitional course, so that agents can work toward acquiring the correct education. As well, a conditional license option does exist, which would allow the agent to become licensed for a period while they work toward completing the requirements.

Other new additions to the legislation include new rules around disclosure, stricter policies regarding advertising and company websites and mandatory errors and emissions insurance.

In the past FSCO did not have in-house disciplinary powers, but the new legislation has added some teeth the Commission. “There will be additional powers given to the regulator and there will be enforcement around that,” said Murphy. “FSCO will be going out and ensuring that the new requirements of the legislation are met.” This may be in the form of fines or license suspensions.

Overall, reaction in the industry has been positive. From a lender’s perspective the new legislation will help weed out inappropriate applications coming from unqualified agents, which can only beef up confidence levels.

“An unregulated industry is fairly easy to get involved in and to get involved in on a part-time basis, which has historically happened,” said David Massie, a vice-president at Centum Financial Group Inc., a “super-broker” franchise firm with outlets across Canada. “It’s going to take out a lot of people that don’t have the ability to keep up with developments in the industry and who are just not able to deliver the top level of service that the industry wants to deliver to the consumer.” He says his firm deals with 45 different lenders. “All of those lenders have broad ranges of products and in order to serve the consumer to the best possible level you really need to be educated about all of those products.”

@page_break@Pinheiro says the legislation is not intended to weed out any particular agents, but that it will likely occur as a part of the transition process. “It gives consumers better confidence knowing that the individuals they are dealing with are now licensed,” he said. “Just having that licensing component makes it a more stringent environment to work in.”