Last month in Alberta, four people were arrested on charges relating to mortgage fraud. The Real Estate Council of Alberta says mortgage fraud is costing $275 million a year in that province, and across the country, real estate and mortgage professionals say it is a growing problem.
The Canadian Institute of Mortgage Brokers and Lenders (CIMBL) has been working since its inception in 1996 to fight the image that mortgage brokers are sleazy. "If we are going to separate ourselves from other mortgage proprietors, it's very important that we get rid of the bad guys" in the industry, CIMBL president Ron Swift told the association's annual convention last week. "If it was up to me, I'd like to have a public flogging up here on stage, but I'm told we can't do that."
The 7,800-member association decided to transform itself into a "100 per cent accredited, professional association" during the next year. To be a member of CIMBL, it will be necessary to complete the Accredited Mortgage Professional course, which the association developed to set a single national proficiency standard for mortgage professionals. Currently, about 45 per cent of the membership has been awarded the designation.
CIMBL will support the designation with a public relations and media advertising campaign to tout the benefits of using a mortgage broker who has the AMP designation.
Mortgage brokers now command about 25 per cent of the Canadian mortgage market, the association says.
"Canadians will continue to borrow -- whether they are taking out a new mortgage or renewing or refinancing an existing mortgage," says Swift. "The residential mortgage market could expand by 10 or 11 per cent by the end of this year, to $660 billion, and by the end of 2006 we expect another 10 per cent growth for a year-end figure of $725 billion."
The association says during the last 15 years, residential mortgage credit has expanded at a rate of 6.4 per cent, which is faster than the growth rate of total household and business credit.
With all that money changing hands and mortgage fraud becoming a larger issue, the provincial governments that regulate mortgage brokers have been taking a close look at how the industry operates.
In Ontario, changes to the Real Estate Business Brokers Act that take effect in March 2006 include increased fines for mortgage fraud. Fines have been raised to $50,000 from $25,000 for individuals and to $250,000 from $100,000 for corporations.
Ontario's act that regulates mortgage brokers has not changed in more than 20 years, but changes are in the works. There are also new regulations coming in Quebec and Saskatchewan. Alberta is self-regulated, along with the real estate industry, by the Real Estate Council of Alberta. But in B.C. and Ontario, mortgage brokers are regulated by the same ministries that cover financial institutions.
CIMBL conference attendees were told that most governments' number one concern is consumer protection -- and that means that disclosure is the most important aspect of all pending legislation. Governments want consumers to be told who the mortgage broker is working for, and what incentives or remuneration the broker gets if the consumer uses a specific lender. Governments also want to ensure that consumers know exactly what they are getting into in all of their financial dealings.
With the mortgage market still expanding, new companies and mortgage products continue to appear. GE Money Canada, the Canadian consumer lending unit of General Electric Company, recently launched a mortgage business after testing the waters last June.
GE is offering non-prime mortgages that are "primarily directed to consumers who may find it difficult to qualify for traditional, bank-originated mortgage loans," the company says. That includes individuals who are self-employed, new to Canada, or who have "less-than-perfect" credit, the company says.
Wells Fargo Canada is also courting this market. "In mortgage lending, one of the approval criteria we look at in a borrower is 'character' -- the desire and ability of the borrower to make payments on their home," says Richard Valade, Wells Fargo Canada president. "We think some of the conventional rules can be too restrictive and are keeping too many good people out of the housing market."
Benjamin Tal, senior economist for CIBC World Markets, offered CIMBL delegates some advice for when clients ask if they should go with a variable rate mortgage (VRM) or a fixed term. "Over the next three years, a VRM should save them about $500 a year," he said. "Is that enough to justify sleepless nights? I don't know."
He suggested that if the client is in a stable financial situation and has a good portfolio, take a VRM and invest some money in a GIC. But if it's a first-time buyer with a high-ratio mortgage, he suggested they take a fixed-rate mortgage.
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