Until recently, the mortgage brokerage sector has largely been ignored by regulators and litigators. Everyone was making money in mortgages and even poor advice was profitable.
No one complains when times are good but now that the market has turned, we are seeing just how bad the advice was that many borrowers and investors received from their mortgage broker or agent.
As Warren Buffet famously surmised, “Only when the tide goes out do you discover who’s been swimming naked”. Let’s just say, it’s not a pretty sight out there right now!
With my work as an Expert Witness, I’m repeatedly seeing issues around suitability and disclosure in the mortgage broker sector.
Ontario Regulation 188/08 Section 24 (1) requires a brokerage to take reasonable steps to ensure that any mortgage or investment in a mortgage that it presents is suitable for the borrower, or investor.
It seems to be a common theme that far too many transactions have been completed with virtually no consideration for suitability. This applies to both investors and borrowers especially in the private mortgage sector.
In Section 25 (1) of the Regulation, it states that the brokerage shall disclose in writing to a borrower, or investor, the material risks of each mortgage or investment in a mortgage that the brokerage presents for the consideration of the borrower, or investor.
Again, the lack of disclosure of material risks that I’m seeing is alarming, especially when dealing with private mortgage transactions.
In the last year I have reviewed multiple files where mortgage brokers or agents failed to comply with Section 24 and Section 25 of the Regulations. If I was a litigator looking for some low hanging fruit, I would focus on these two areas!
If I can be of any assistance in strategizing over a file, please let me know.