In a recent post / article I talked about the failure of many mortgage brokers and agents to comply with Section 24 and 25 of Ontario Regulation 188/08. These sections deal with disclosure and suitability.
At a basic level, disclosure is about information, while suitability is about judgement.
The incompetent mortgage brokers and mortgage agents of the world often fail at both levels, but I find that even the fully competent ones get trapped in the mindset that they need to get the deal approved and closed. This is where suitability often gets ignored. This may not be done maliciously but it can still have serious consequences.
Just because a borrower or lender has consented to a transaction does not mean that the mortgage, or investment in a mortgage, is suitable for their specific circumstances.
Mortgage brokers and agents need to take the time to perform an analysis of the borrowers, or investors, personal needs and circumstances. Lots of transactions are similar but individual circumstances will play an important role in determining suitability.
Exit strategies are one of the key components that have been overlooked by many mortgage brokers and mortgage agents in Ontario. Exit strategies need to be thought out and achievable. (A hope and a prayer doesn’t count!) I can’t tell you how many applications I have seen from mortgage agents or brokers that suggested the exit strategy would be to refinance with an “A” lender with no thought on how that might actually happen… especially in a declining real estate market.
If you’re a mortgage broker, or mortgage agent, be sure to take the time to assess the suitability of every transaction. Be sure to document your assessment. If it’s not documented, the regulators, or a litigator, may argue it never happened.
Be careful out there!