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Mortgage Brokering In Ontario Cheat Sheet by

Cheat sheet for the Mortgage Agent exam in Ontario, content based on : Mortgage Brokering In Ontario - 13th edition - Joseph J. Whilte

Introd­uction

MBLAA
Mortgage Brokers, Lenders and Admini­str­ators Act, 2006
Mortgage Agent
A licensed individual to broker a mortgage - lowest in hierarchy - works under a mortgage broker
Mortgage Broker
A licensed individual to broker a mortgage - mid-level in hierarchy - may work under a principal broker (top guy at a brokerage - overseeing all operations and respon­sible/ accoun­table for them and to ensure compliance with legisl­ations and regula­tions)
FSRA Ontario
Financial Services Regulatory Authority of Ontario
FSCO
Financial Services Commission of Ontario
Regulator
of mortgage brokering in Ontario changed from FSCO to FSRA on June 8 2019

Basic mortgage concepts

Use of mortgage
Purchase, refinance, equity take-outs (ETO), bridge financing
HBP - home buyer's program
First-time home buyers can use up to $35k from their RRSPs as a down payment without paying tax on withdr­awal. Repayment in 15 years. Spouse­s/p­artners can withdraw $70k in total.
HBTC­-Home buyer's tax credit
Enacted in 2009, the federal government provides a non-re­fun­dable tax credit, based on an amount of $5,000, for certain home buyers that acquire a qualifying home.
Interest rate
Calculated semi-a­nnu­ally, not in advance

J1 = Annually
J2 = Semi-a­nnually
J4 = Qualrterly
J12 = Monthly
J26 = Bi-weekly >>DO NOT Fuck this one up - never do (biweekly paymt. x2)x12 for annual conversion in calcul­ations - you will miss on 2 weeks
J52 = Weekly
J365 = Daily
Compound interest example
100000 borrowed for 1 year at 6% :

for first six months:

$100000 x 3% = 3000 (Interest)
Principal+interest= $103000

for second half of year:

103000 x 3% = 3090 Interest)
Principal+interest=$106090
Standard Charge Terms
The Standard Charge Terms is a document that is created by the lender and must be registered with the Director of Titles under the Land Titles Act.

This document is the mortgage contract. It contains detailed inform­ation on the lender’s and borrower’s obliga­tions, referred to as covenants, as well as the remedies available to the lender if the borrower does not meet these obliga­tions. A covenant is a promise to do or not do something. In a mortgage contract, both the mortgagee, who is the lender, and mortgagor, the borrower, have covenants that each must abide by.
Borr­ower's covena­nts
1. Repay the loan
2. Insure the property
3. Maintain the property
4. Not to commit waste
5. Pay property taxes
6. Follows the Standard Charge Terms
Lender's covena­nts
1. Certif­icate of discharge
2. Assignment of mortgage
3. Provide quiet possession
Mortgage ranks
1st mortgage, 2nd mortgage and so on. 2nd becomes 1st as soon as the first one gets paid off
High ratio mortgage
LTV>80%
Need to be default insured unless provided by a non federally regulated bank.

Self-insured lender­-does not use default insurance but charges a lender's fee and pools this money for insurance.
Conven­tional mortgage
LTV<=80%

Mortgage options

Prepayment options
Fully open - allows borrower to repay, whole or in part, anytime without penalty or notice. Flexible but higher rate.
Partially open - allows to pay whole with a penalty of either 3 month's worth of interest or the interest rate differential
Closed - Doesn't allow full prepayment at anytime unless property being sold at arm's length. You can still increase monthly payment amounts.
Repayment options
Periodic payment increase - borrower can increase payment
Accelerated mortgage payment - only difference from periodic payment is that this can start even before the first payment is made
Lump sum payment - paying a large amount in parts or whole - towards payment if the principal
Extended amorti­zat­ion - Increasing mortgage duration to ease payments (e.g. from 25 to 30 years)
Cash back option
Borrower receives some cash back on closing - cash-back requires repayment
Combin­ed/­bundles option
Combining mortgage with another product - e.g. Line of credit. Scotiabank currently offers a STEP Mortgage
Portab­ility option
Allows current homeowner to to take his/her current mortgage to new home
Assuma­bility option
Allows a purchaser to take over a borrower's current homeow­ner's debt

Property ownership in Ontario

Real vs. personal property
Real property - land and everything affixed to it. Personal property - everything else than real. Short lived and movable. E.g. cars. Personal property is also called as chat­tels.
Ownership
Every piece of real property is owned by the crown. We pay taxes to use the property in our title.
Fee simple estate
The fee simple estate is the most common form of ownership in Ontario and provides the holder with the widest breadth of rights available. Fee refers to the fact that the estate may be inherited while simple refers to the fact that there are no prohib­itions against who may inherit it.
Leasehold estate
The leasehold estate, commonly referred to as a lease, is an interest in land created by a landlord and tenant, most commonly by a lease.
Life estate­/Life lease
A life estate is defined as the right to use or occupy real property for the duration of one’s life. At the end of that person’s life, the life estate is over, and the fee simple ownership goes to the remain­derman.
Condom­inium ownership
Condom­iniums combine fee simple ownership of individual units, referred to as strata lots, including all of the rights attached to that ownership, with a combined ownership of common areas, referred to as common elements. These common elements include the hallways, recrea­tional facili­ties, elevators, lobby, and so on.
Each unit pays a condom­inium mainte­nance fee on a monthly basis to the condom­inium corpor­ation.
Encumb­rances
An encumb­rance is an interest in property that has the effect of limiting the rights of fee simple ownership of real property. Typical encumb­rances are mortgages, easements, and restri­ctive covenants.
Mortgage- A mortgage is registered on title and has contra­ctual obliga­tions that prohibit the fee simple owner from having full control of his or her property.
Easements- Easements are rights acquired for the benefit of real property, granting rights to use another property. The land giving the right is called the servient tenement while the land receiving the right is called the dominant teneme­nt, where the term tenement simply refers to the real property. E.g. - Access to lake example in the book.
Restrictive covena­nts- A restri­ctive covenant is a restri­ction of use placed on title of the servient tenement for the benefit of the dominant tenement. E.g. - not creating a structure taller than Mount Royal.
Building Schemes- A building scheme is a group of restri­ctive covenants registered against several properties in a develo­pment plan that is binding on all purchasers of a property within that develo­pment. E.g. limit the number of stories of properties in sub division.
Co-own­ership of real property
Tenancy in common- Shared ownership (distr­ibuted and indivi­dually owned shares)
Joint tenancy- Collec­tively owning a property - demise of one passes the property to other. E.g. - Spouses usually own jointly.
Judgements
A judgment, as it relates to a debt, is a judge’s decision that a debt is owed by a debtor to a creditor. In Ontario a creditor can, after obtaining a judgment, file a Writ of Seizure and Sale of land against a debtor in any county or district in which the debtor owns land. The writ will encumber any currently owned land in any county or district, or land which is purchased in the future by the debtor, by way of placing a lien against the property.
Liens
A lien is security against a property, either real or personal, for a debt. Legisl­ation allows for the placing of a lien on a property for constr­uction costs not paid, which is commonly referred to as a mechanic’s lien.

Insurance in mortgage industry

Benefits
To lender- Allows the lender to make loans in excess of 80% loan to value and recover insured losses by making a claim to the insurer.
To borrow­er- Allows the borrower to receive a high ratio mortgage with favourable terms and a favourable interest rate.
Mortgage creditor insurance
There are two types of mortgage creditor insurance.
• The first is typically a life insurance policy provided to a borrower by an instit­utional lender.
• The second is a life insurance policy provided to a borrower through a third party, such as the Mortgage Protection Plan (MPP), which is not affiliated with an instit­utional lender
Property insurance
Property insurance is a policy of insurance that provides coverage for the homeowner against covered risks.
Types of Insurance
Home insura­nce and Cond­ominium insura­nce
Home Insura­nce
Covers for:
- Building coverage
- Named-­Perils converage
- Contents
A standard house policy provides for the Actual Cash Value (ACV) replac­ement of belong­ings.
Replacement value coverage means that the contents of the policy owner’s house are insured for the amount it costs to replace them.
- Detached private structure
- Additional living expenses
- Personal liability
- Voluntary Payments for Medical Expenses
- Rental Loss Insurance
Cond­ominium insura­nce
Reduced insurance liabil­ities for the owner.
A "­master policy­" is purchased and provided by the condom­inium board. This covers the common areas shared with others in the building like the roof, basement, elevator, heating room, lobby, swimming pool, parking garage, etc. for both liability and physical damage.
Title insura­nce
Title insurance is a policy of insurance that provides coverage for the title-­related risks associated with real estate transa­ctions. It is designed to cover the unpred­ictable or undete­ctable issues such as forgery, fraud, missing heirs, etc. that can affect rights of ownership.
Types of polici­es-
- Lender policy: This policy is normally taken at the request of the lender upon closing of a refina­ncing transa­ction. These policies may provide coverage to both the lender and the homeowner, which is recomm­ended.
- Homeow­ner's policy: This policy is normally taken by the new homeowner when purchasing a property; however, title insurance can be purchased at any time during the homeow­ner’s ownership of the property.
Title insurance protects against -
• Defence of title
• Fraud and forgery (including title fraud, the regist­ration of a fraudulent mortgage, etc)
• Unenfo­rce­ability of the insured mortgage
• Defects that would have been revealed by an up to date Survey
• Errors in the Survey
• Legal services, including lawyer neglig­ence, lawyer fraud, lawyer death, disbarment or retirement
• Defects in title such as liens, execut­ions, adverse claims, encroa­chm­ents, unregi­stered easements, mortgages and other encumb­rances
• Unmark­eta­bility of title
• Hydro, tax, water and gas arrears
• Executions against prior owners
• Condom­inium status certif­icates
• Septic system violations
• Work orders, non-co­nfo­rming zoning
• Restri­ctive covenants
• Municipal work orders and permits
• Unregi­stered hydro easements
• Other risks covered by the policy.
Title insurance doesn't protect against -
• Title issues that arise after the policy date that were not present before (other than fraud and other covered risks)
• Title defects that the homeowner was aware of and to which the homeowner agreed
• Title defects that the homeowner was aware of and about which the homeowner did not inform the insurer
• Enviro­nmental hazards, unless noted on title
• Legality or rents
• Fire retrofit compliance
• Costs of moving fences or boundary walls
• Losses from failing to make a claim in a timely fashion
• Other exclusions included in the policy.
Soli­citor’s Opinion on Title
A “Solic­itor’s Opinion on Title” is a report by the lender’s real estate lawyer outlining the condition of the title of the mortgaged property and covers issues up to closing.
Errors and Omissions Insurance (E&O)
Errors and Omissions insurance is an insurance policy that covers the profes­sional from claims made against him or her due to negligence in the form of errors committed in a transa­ction. Insurance policies prior to 2008 did not have a fraud provision.
IMPO­RTANT
As FSRA states, “All mortgage brokerages and admini­str­ators are required by law to carry errors and omissions (E&O) insurance in a form approved by the FSRA, with extended coverage for fraudulent acts. This E&O insurance must cover a minimum of $500,000 in respect of any oneocc­urrence and $1 million in respect of all occurr­ences in a given year. The legal requir­ements about E&O insurance are in Ontario Regula­tions 188/08 and 189/08 under the Mortgage Broker­ages, Lenders and Admini­str­ators Act, 2006 (MBLAA).

Chapter 10: Getting your first client

Ask open ended questions
Read through the inbo­und­/ou­tbound scripts in the textbook
This chapter is NOT IN THE EXAM but is good to help with real-life scenarios

Initial Consul­tation

Required docume­nta­tion
Docu­men­tation for all Transa­cti­ons
• Employment Verifi­cation

Employment docume­ntation requir­ements vary from lender to lender; however, the following is a list of docume­ntation that is typically acceptable for an employee:
- T4
- Pay Stubs
- NOA (Notice of Assessment – often requested when there is commission income)
- Letter of employment
- Tax Return (also may be requested when there is commission income)

For a self-e­mployed individual the following may be required:
- Financial Statements
- Business License
- Business Cheque


• PIPEDA Consent
This document allows the mortgage agent to use the applic­ant’s personal inform­ation for the purposes contained within the consent form.


• Photo Identi­fic­ation
Photo identi­fic­ation is required to prove the identity of the applicant. The original document should be viewed, and a photocopy obtained for the file.


• Divorc­e/S­epa­ration Agreement (if applic­able)
If applicable this document outlines the terms and conditions of the separation or divorce and will typically include any payments that are required to be made for alimony.


• Child Support Order/­Agr­eement (if applic­able)
If applicable this document outlines the terms and conditions of child support, including any payments that are required to be made.

Specific Docume­ntation for a Purchase
The following is a list of docume­ntation that is typically required when a client is purchasing a property:
- Purchase and Sale Agreement
- MLS Listing (for resale proper­ties)
- Proof of Down payment
- Rental Letter (if applic­able)
- Real estate salesp­erson Inform­ation

Specific docume­ntation for a Refinance, Equity Take-Out and Switch The following is a list of docume­ntation that is typically required when a client is refina­ncing his or her current mortgage, taking equity out of his or her property or switching lenders on renewal:
• Current mortgage statement
• Charge­/Mo­rtgage
• Transf­er/Deed
• Property tax statement
• Property insurance policy
• Mortgage repayment history (if applic­able)
Meeting the client
There are three basic places where a mortgage agent can meet a client:
• The client’s home
• The mortgage agent’s office
• Another outside location.

Read through the textbook on how to handle and steer conver­sat­ions
Appl­ication form
Must read through the textbook to understand
Dete­rmining the applic­ant's needs
Must read through the textbook to understand

Applic­ation analysis - RATIOS

LTV =
loan­/va­lue
Max Mtgg. from LTV =
LTV x Value of property
LTV of 2nd Mtgg. =
(1st mtgg amt. + propposed 2nd mtgg.) / Value
GDS and TDS
The GDS and TDS are debt service ratios that are designed to determine whether a mortgage payment can be afforded by the potential borrower. A debt service ratio is the ratio of debt to income expressed as a percen­tage. While these ratios have not changed in several decades, they remain the fundam­ental calcul­ations in determ­ining afford­abi­lity.
PITH
Pr­incipal + In­terest + Property Taxes + Heat
GDS
The GDS is designed to determine if the potential borrower can afford the proposed mortgage payment based on his or her income (or a combined income, if there is more than one applic­ant). The GDS combines the costs that a potential borrower has regarding shelter and divides that cost by his or her gross income (the income before taxes are deducted).

Industry Standard – 35% (as per July 2020)
GDS =
[(PITH + ½ Condo Mainte­nance fee) / Gross Income] x 100
TDS
Like the GDS the TDS is designed to determine if the borrower can afford the potential mortgage payment, however this calcul­ation also includes all other debts that the borrower has.

The TDS has two main functions. It can be used to:
1. Pre-­qua­lify the borrower by determ­ining the maximum mortgage payment that the borrower can afford.
2. Verify that the payment qualifies by determ­ining if the potential mortgage payment falls within the lender’s TDS ratio.

Industry Standard - 42%
For pre-qu­ali­fic­ation
Maximum Mortgage Payment = (Income x Max TDS / 100) – (Property Taxes + Heat + ½ Condo Mainte­nance Fee + Other Debts)
TDS includes
• Loans
• Mortgage payments
• Credit cards
• Child support
• Alimony
• Any payment that, if discon­tinued, would result in a balance owing.
TDS does NOT include
• Child care expenses (that are not court ordered)
• Food
• Clothing
• Entert­ainment
• RRSP contri­butions
• Car insurance
• Property insurance
• Life insurance
• Any expense or payment that, if discon­tinued, would not result in a balance owing
Outsta­nding balance or credit limit in the TDS?
Lenders will typically use 3% of the outsta­nding balance on a credits cards and other types of unsecured revolving credit as the payment amount when calcul­ating the TDS, although this can vary from lender to lender. For secured debts CMHC suggests lenders calculate what the monthly payment would be if the debt was amortized over 25 years. It is important to know how a lender calculates the TDS before submitting an applic­ation to that lender.
TDS (inter­pol­ation of the given formula)
TDS = [(PITH + ½ Condo Mainte­nance fee + Other Debts) / Income] x 100

Applic­ation analysis - Borrower Credit

Credit Bureaus
Equi­fax and Tran­sun­ion
Sample credit reports
Report Examples
https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/understand-credit-report.html
Credit analysis
Interpreting a Credit Report
https://youtu.be/QfS6G0ex-vU

Applic­ation analysis - The property

Purpose of appraisal - To determine:
• The cost to rebuild the home in case of damage, such as by fire (insurable value)
• A value so that a munici­pality can apply its property tax rate (taxation purposes)
• The price that a real estate investor would pay for a property based on his or her preferred rate of return (inves­tment value)
• The amount that the property can obtain if sold (selling price)
• The future value of a property under constr­uction (future price)
• The value of a property being exprop­riated by the Crown (expro­pri­ation value)
• The market value of a property for a lender to decide on an approp­riate loan amount for mortgage financing.
Accred­ita­tions
Appr­aisal Institute of Canada (AIC) - Offers AACI and CRA
- Accredited Appraiser Canadian Institute, Profes­sional Appraiser (AACI, P.App) - Highest - can assess all types of properties - reside­ncial, commer­cial, rural.
- Canadian Reside­ntial Appraiser (CRA) - Has completed the reqior­ements of being AIC. Can only assess and valuate individual or undeve­loped reside­ntial dwellings

Appr­aisal Institute of Canada (AIC) - Offers AACI and CRA
- DAR (Desig­nated Appraiser Reside­ntial)
- DAC (Desig­nated Appraiser Commer­cial)
- DAC (with a Specialty in Agricu­ltural)
- CMAR (Certified Mortgage Appraisal Reviewer)
- CAR (Certified Appraisal Reviewer)

Appr­aisal Institute of Canada (AIC) - Offers AACI and CRA
- Fellow of the Real Estate Institute (FRI)
Calcul­ating Market value of a property
Income approach
Cost approach
Direct comparison approach
Types of apprai­sals
Desktop Appras­isals - uses AVMs and MLS
Drive-by Appras­isals
Full Appras­isals

Borrower disclosure

Borr­ower's disclosure is NOT a contract
Borrower's disclosure should include
The MBLAA states that the borrower disclosure must include the following inform­ation:
1. Fees and payments associated with the mortgage
2. The relati­onship between the brokerage and lender under the proposed mortgage
3. The role of the brokerage
4. The number of lenders the brokerage repres­ented during the previous year
5. Potential conflicts of interest
6. Risks associated with the proposed mortgage
7. Terms and conditions of the proposed mortgage
8. Estimated costs
9. The cost of borrowing
<< Read this chapter from the book - crucial details covered >>

Closing the transa­ction

Common Closing Costs
- Mortgage default insurance
- Land Transfer Tax (All of Ontario)
- Municipal Land Transfer Tax (City of Toronto)
- Home inspection - purchase
- Appraisal fee
- Legal Fees (read chapter for breakd­own)
- Regist­ration of a Mortgage Only
- Title Insurance
- Property Insura­nce­Int­erest Adjustment Amount
- New Home Warranty
- New Hydro Account
- Status Certif­icate Fee - Condos only
- Closing adjustment - (due taxes, utilities, bills etc.)
- HST (on
- a new home)
- PST on Default insurance
Electronic Land Regist­ration
The province of Ontario, through the Province of Ontario Land Regist­ration Inform­ation System (POLARIS), in partne­rship with Teranet Land Inform­ation Services Inc., a private sector corpor­ation created in 1991, has developed e-reg. 1994 saw the provincial legisl­ature pass legisl­ation creating the statutory framework for e-reg, and Teranet has developed the software, called Teraview, used to access and use the e-reg system.
Through Teraview,
the lawyer can complete the following pre-cl­osing and closing proced­ures:
• Automated title searching
• Writ searching
• Subsea­rching
• Creation of drafts and documents ready to be registered
• Calcul­ation and payment of land transfer taxes
• Electronic regist­ration of documents, as well as other proced­ures.

ENDING CHAPTERS

Contract law
Requires detailed Study from the book
Mortgage remedies
Power of sale/f­ore­closure - requires detailed Study from the book
Mortgage fraud
Types of fraud and fraud prevention - requires detailed Study from the book
Ethics and mortgage broker­ing
Applying core value principles to the profes­sional activities :
 

Key Partic­ipants

Mortgage Brokerage
The mortgage brokerage is the licensed mortgage brokering entity.
Principal Broker
The Principal Broker is a licensed mortgage broker who is designated by the brokerage to be its chief compliance officer. Under the MBLAA, the brokerage is licensed, and it must have one licensed mortgage broker designated as the Principal Broker.
Instit­utional lender
Instit­utional lenders consist of Schedule 1, 2 and 3 banks, credit unions, loan and trust companies, finance companies or other corpor­ations constr­ucted to lend money on real estate.
Private lender
A Private lender is typically an individual investor with funds who would like to invest in mortgages.
Borrower
The borrower is called the mortgagor and is the individual or indivi­duals who are taking the mortgage loan and pledging their property as security.
Mortgage Default Insurer
The Mortgage Default Insurer provides mortgage default insurance policies to lenders typically offering high ratio mortgages, although default insurance can be provided on a mortgage loan of any loan to value.

Canada Mortgage and Housing Corpor­ation (CMHC) and the two private insurers, Genworth Financial Canada and Canada Guaranty Mortgage Insurance Company (Canada Guaranty).

Key terms

Mort­gage
“Any charge on any property for securing money or money’s worth.” However, the more common definition of a mortgage states that: a mortgage is defined as a loan secured by real property.
Collateral mortgage
a promissory note with a lien on the property for the total amount regist­ered. You can register more debt against the property than the property is worth since normal regulatory limita­tions on loan to values do not apply.
Line of credit (LOC)
Is an amount of credit made available to a borrower but not advanced on closing.
B20 Stress Test
From Jan 1 2018, OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages. Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contra­ctual mortgage rate +2%.
Loan to value
*MOST IMPORT­ANT­*: Sum of loan(s) and borrowings divided by the value of the property

Repayment plans

Blended payment
means each payment instalment goes towards both principal and interest (in different propor­tions)
Partially Amortized, Blended Constant Payment Mortgage - Fixed rate
Part­ially amorti­zed: There is a term (usually 5 years) involved. Rate of interest remains throughout the term
Merits
Security - buyer can plan the budget. Good for 1st timers
Risks
Potential lack of savings
Partially Amortized, Blended Constant Payment Mortgage - Variable rate
Same as above, rate varies through the term. As the payment is constant (fixed amount), the times when interest rate is low, more money goes towards the principal payout.
Merits
•Savings - good for risk takers - interest rates are usually lower than fixed type
•Ability to switch to a fixed rate
Risks
•Volatility - rates might increase and cause stress
•Negative Amorti­zation - if rate goes high, the payment might increase to cover the excess interest
Partially Amortized, Blended Variable Payment Mortgage - Variable rate
Similar to above, but payment will vary each time.
Merits
•Savings - Lowest rates in the market - more savings if rates drop further
• Maintain amorti­zation - helps borrower to finish off paying mortgage in a fixed number of years irresp­ective of rate
Risks
•Volatility
•Payemnt fluctu­ations
Interest Only Mortgage
Paying the interest only.
Merits - Increased cash flow, increased purchasing power, good for investments.
Risks - no principal reduction
Home equity line of credit (HELOC)
OSFI limits interest only HELOCs to LTV of 65%
Interest accruing mortgage
Nothing is paid ever. Borrower needs to be super sure of the increase in value of property. Good for invest­ments only.
Merits - Cash flow
Risks - increasing debt, reduced equity over time
Reverse mortgage
Provided to seniors (55 or older), given 55% of the value of property in lump sum cash. Tax free
Straight line principal reduction mortgage
Fixed amount of principal paid each time. Not common in Ontario and Canada
Graduated payment mortgage
Lower payments in the beginning, increasing later.

Regulation and legisl­ation

Disc­los­ure
The act of revealing something, or making something evident. Several types of disclosure are required under the MBLAA and Regula­tions.
Regu­late
To govern or direct according to rule, to make regula­tions for or concerning an industry.
FSRA
Financial Services Regulatory Authority of Ontario is respon­sible for enforcing the current legisl­ation and regulating the mortgage brokerage industry, among others.
MBLAA regula­tions
• Mortgage Broker­ages
408/07 Mortgage Broker­ages: Licensing
188/08 Mortgage Broker­ages: Standards of Practice
• Principal Brokers
410/07 Principal Brokers: Eligib­ility, Powers and Duties
• Mortgage Brokers and Agents
409/07 Mortgage Brokers and Agents: Licensing
187/08 Mortgage Brokers and Agents: Standards of Practice
• Cost of Borrowing and Disclo­sure
191/08 Cost Of Borrowing and Disclosure to borrowers
• Mortgage Admini­str­ators (note: this is not covered on the exam as it does not apply to mortgage agents)
406/07 Regulated Activi­ties: Additional Prescribed Activities
411/07 Mortgage Admini­str­ators: Licensing
189/08 Mortgage Admini­str­ators: Standards of Practice
• Licensing Exempt­ions
407/07 Exemptions from the Requir­ement to be Licensed
• Reporting Requir­eme­nts
193/08 Reporting Requir­ements for Licensees
• General
190/08 General
• Penalt­ies
192/08 Admini­str­ative Penalties
Activities that are Regulated
The MBLAA regulates the following activi­ties:
• dealing in mortgages in Ontario
• trading in mortgages in Ontario
• carrying on business as a lender in Ontario, and
• carrying on the business of admini­stering mortgages in Ontario
Lice­nsure
1. a brokerage license
2. a mortgage broker’s license
3. a mortgage agent’s license
4. mortgage admini­str­ator’s license.
Vendor take-back
A vendor take-back, also known as a VTB, is where the seller of the property provides all or some of the financing to the purchaser in order to sell the property
Trust funds*
Trust funds are those monies received by a brokerage or Admini­strator on behalf of or payable to another party.
Admi­nis­trative penalt­ies
An admini­str­ative penalty may not exceed $10,000 in the case of a contra­vention or failure to comply by a mortgage broker or agent or $25,000 in the case of a contra­vention or failure to comply by a brokerage, Mortgage Admini­strator or any other person or entity, or such lower amounts as may be prescr­ibed.
Advance payment regulation
As per Sections 37 – 39 of Regulation 188/08, a brokerage cannot accept an advance payment from the borrower on transa­ctions where the principal amount of the mortgage is $400,000 (as of January 1, 2016; it was previously $300,000) or less.
READ CHAPTER 5 FROM THE BOOK
THERE ARE DETAILS WHICH WOULD HAVE MADE THE CHEAT SHEET UNNECE­SSARILY LONG, HENCE INSTEAD OF COPY-P­ASTING THE WHOLE CHAPTER, I SUGGEST TAKING A THOROUGH READING.

Transa­ction Overview

Mortgage broker
A practicing profes­sional who assesses a borrower’s financial goals with respect to real estate financing and after detailed analysis provides solutions to meet those goals by acting as an interm­ediary with the approp­riate lending source. a mortgage agent has two clients: the borr­ower and the lend­er.
Lender Expect­ations
1. Provide borrowers who are suitable for the lender
2. Provide approp­riate protection against fraud
3. Facilitate the transa­ction to its successful completion (funding).
Borrower Expect­ations
1. Act in the borrower’s best intere­sts
2. Completely analyze the borrower’s needs
3. Make approp­riate recomm­end­ations based on the borrower’s needs
4. Facilitate the transa­ction to its successful completion (funding).
Steps in a brokered transa­ction
1. Attracting a client
2. First contact
3. The initial consul­tation
4. File creation and management
5. Applic­ation analysis: Borrower income and GDS/TDS ratios
6. Applic­ation analysis: Borrower Credit
7. Applic­ation analysis: The property and LTV ratio (includes ordering an appraisal if applic­able)
8. Choosing a lender
9. Submitting the applic­ation
10. Obtaining the commitment
11. Preparing disclosure documents
12. Presenting the commitment and disclosure documents
13. Meeting conditions
14. Instru­cting the lawyer
15. The lawyer­/client meeting
16. Funding the transa­ction
17. File submission to the brokerage
18. Receiving commis­sions
19. Record keeping

Calculate Mortgage Payment

Balloon payment =
Outsta­nding balance
Mortgage origin­ation software
This software performs the calcul­ations required to determine a borrower’s mortgage payment and various other financial components of a mortgage without the broker having to perform these calcul­ations manually.
Present Value (PV)
For the purposes of mortgage finance, the present value is the monetary value of a loan at a specific point in time.
Future Value (FV) (and Outsta­nding Balances)
For the purposes of mortgage finance both the future value and outsta­nding balance is the monetary value of a loan at a future point in time. The main difference is simply that the future value is the value of the mortgage as an asset to the lender, while the outsta­nding balance is what is owing at a point in time by the borrower. For our purposes the future value and outsta­nding balance will typically be the same number.
Amorti­zation Period
The amorti­zation period tells us how long it will take to fully repay the mortgage amount. The amorti­zation period is expressed in years. A fully amortized mortgage is one in which there is no term, and a partially amortized mortgage is one in which there is a term.
Interest Rate
The interest rate tells us how much the lender is receiving in interest in return for providing the mortgage amount.
Compou­nding Frequency
The compou­nding frequency tells us how often the annual rate of interest compounds, which in turn tells us the precise amount of interest that is being charged. This exact amount must be known to be able to calculate the mortgage payment.

*Revisit the J1, J2, J4 ...
CHAPTER 8 In the textbook
Mortgage Payment Calcul­ation - This chapter is based on HP, SHARP and Texas Instru­ments Calculator models. This same calcul­ation can be done using algebra too. Calcul­ators on the websites are based on these formulas.

This chapter can be skipped as it is not on the online proctored exam

Marketing

Intr­odu­ction
The activities available to attract a client are numerous, and many are impacted by legisl­ation and other industry guidel­ines. Legisl­ation and industry guidelines are designed to prevent such practices as misleading advert­ising, the bait and switch (providing a consumer with an attractive offer to obtain him or her as a client but being unable to provide the product or service at the indicated price), false advert­ising and so on.
Public Relations Materials: Agents and Brokers
(a) any advert­isement by the broker or agent in connection with his or her status as a licensee or his or her dealing or trading in mortgages that is published, circulated or broadcast by any means, or
(b) any material that a broker or agent makes available to the public in connection with his or her status as a licensee or his or her dealing or trading in mortgages. O. Reg. 187/08, s. 1 (2).
MUST be included in all Public Relations Materials of Agents and Brokers
To summarize, the following must be included in all public relations materials that an agent or broker is using.
1. Brokerage name (if a franchise state that it is indepe­ndently owned and operated)
2. Brokerage license number
3. Agent or Broker Name as registered with FSRA
4. Agent or Broker title – for example, mortgage agent or mortgage broker
False advert­ising and misleading terms

Have access to all / work with all lenders - imposs­ible: RBC and BMO don't deal with brokers
Access to over 50 lenders
No job? No credit? No problem!”, “Good credit, bad credit or no credit...all are approved!, “Guara­nteed approval”
Lowest rates in town
Quoting teaser or discounted rates without advising of other costs or details
Quoting payments based on extended amorti­zations that appear to be less expensive than regular amortized mortgage
Bait and switch
PIPEDA
Personal Inform­ation Protection and Electronic Documents Act *requires you to:
• obtain the clear consent of an individual before you collect, use or disclose personal inform­ation about that individual
• use the inform­ation only for the purposes for which you have consent
• protect the inform­ation from unauth­orized access and use
• keep the inform­ation up to date and correctly filed so that decisions are based on correct inform­ation
• destroy inform­ation when you no longer need it for the original purpose and
• implement accoun­tab­ility mechanisms in your organi­zations to ensure compliance with the above.
CASL
Canadian Anti-Spam Law

Applic­ation file checklist

Applic­ation analysis : Borrower's documents

Income Docume­nta­tion
Validate to prevent potential fraud
T4A
A T4A is a document provided to an individual by his or her employer which summarizes income from various sources and is used by the individual for submitting an annual income tax return.

The types of income that are reflected in a T4A include:
• pension or supera­nnu­ation;
• lump-sum payments;
• self-e­mployed commis­sions;
• annuities;
• retiring allowa­nces;
• patronage alloca­tions;
• registered education savings plan (RESP) accumu­lated income payments;
• RESP educat­ional assistance payments;
• fees or other amounts for services; or
• other income such as research grants, payments from a Registered disability savings plan (RDSP); wage-loss replac­ement plan payments if you were not required to withhold Canada Pension Plan (CPP) contri­butions and employment insurance (EI) premiums, death benefits, or certain benefits paid to partne­rships or shareh­olders

Employers must also prepare a T4A slip if they provided group term life insurance (taxable benefits) for former employees, or retirees, even if the total of all benefits paid in the calendar year was $500 or less. In addition, the employer must prepare a T4A slip if they are theAdm­ini­strator or trustee of a multi-­emp­loyer plan and they provided taxable benefits under the plan to employees, former employees, or retirees, if the total of all benefits paid exceeded $25.
T4
A T4 is a document provided to an individual by his or her employer to summarize income for a given one-year period. This document is typically obtained by a broker­/agent when the applicant has employment income such as salaried or hourly income. {{NL}}
Every employer (resident or non-re­sident) must provide a T4 slip to employees if it has paid its employees any of the following types of income:
• employment income
• taxable allowances and benefits
• fishing income or any other payments for services rendered during the year
• salary, wages (including pay in lieu of termin­ation notice,) tips or gratui­ties, bonuses, vacation pay, employment commis­sions, gross and insurable earnings of self-e­mployed fishers, and all other remune­ration paid to employees during the year
• deductions withheld by the employer during the year and
• pension adjustment (PA) amounts for employees who accrued a benefit for the year under the employer’s registered pension plan (RPP) or deferred profit­-sh­aring plan (DPSP)
Job Letter, Paystub, Stated income declar­ation letter
See examples in the book
Notice of assessment (NOA)
An NOA is issued by the federal government when a personal tax return has been completed and filed. This document provides a breakdown of the year’s income along with the balance owing or refund due. See example in the book
Financial Statements
Read the examples from the book.

Assets = Liabil­ities + Owner’s Equity

Net income = Revenues - Expenses
Acceptable forms of identi­fic­ation
Primary identi­fic­ation
• A valid driver's licence issued in Canada;
• Current Canadian Passport;
• Nexus/ CANPASS card;
• A Federally issued Firearms Licence A Certif­icate of Canadian Citize­nship (conta­ining your photog­raph) or Certif­ication of Natura­liz­ation (conta­ining your photog­raph);
• A Federally issued Permanent Resident Card;
• A Certif­icate of Indian Status issued by the Government of Canada;
• or A Provincial Government issued Photo ID Card.

Seco­ndary identi­fic­ation
• An employee identity card with a photograph from an employer well known in the community; A signed automated banking machine (ABM) card or client card issued by a member of the Canadian Payments Associ­ation;
• A signed credit card issued by a member of the Canadian Payments Associ­ation;
• A signed Canadian Institute for the Blind (CNIB) client card with a photog­raph;
• A birth certif­icate issued in Canada;
• A Social Insurance Number (SIN) card issued by the Government of Canada;
• A Certif­icate of Canadian Citize­nship;
• Métis Nation ID Card;
• or FAST ID Card.
Multiple Listing Service (MLS)
MLS allows real estate salesp­eople to see properties being sold by other agents, a benefit to both buyers and sellers of real estate. The Multiple Listing Service effici­ently distri­butes inform­ation so that, when a real estate salesp­erson is introduced to a potential home buyer, the salesp­erson may search the MLS system and retrieve inform­ation about all homes for sale in a given area or price range, whether under a listing contract by that salesp­erson’s brokerage or by any of the other partic­ipating brokers.
Agreement of purchase and sale
The agreement of purchase and sale is a document used when real estate in Ontario is being purchased or sold. In all cases, where the applicant is applying for a mortgage to purchase a new or resale home, the lender will require a fully completed purchase and sale agreement.
Other docume­ntation
Gift letter - indicating monetary gifts received
Property assess­ment - indicating assessed value of the porperty
Mortgage statem­ent - detailing the current financial standing of the mortgage, including its outsta­nding balance, interest rate, time remaining in the term and other important financial inform­ation
Tax bill - A tax bill is a document provided to a homeowner by the municipal tax authority in the jurisd­iction in which the property is located.
Condo status certif­icate - A Status Certif­icate, formerly known as an Estoppel Certif­icate, is a document provided by a condom­inium corpor­ation (the entity that runs the condom­inium) to the owner of the condom­inium unit. This document is required by lenders to confirm that the condom­inium corpor­ation has sufficient reserve funds for its continued operation; and reveals the amount of the condom­inium mainte­nance fee, and whether there are any legal procee­dings against the condom­inium corpor­ation, among other inform­ation.
Cert­ificate of Indepe­ndent Legal Advice (ILA) - states that the lawyer has met with the client, explained the terms and conditions of the mortgage, and that the client attests that he or she is not taking the mortgage under duress or undue influence.
Creditor insurance applic­ation - This is a document used by an Insurance Company to determine the eligib­ility of an applicant for creditor insurance.

Choosing a lender

Types of lenders
Prime mortgage lending - for prime customers (having a good and verifiable credit­/in­come) - usually comprises of chartered banks and financial instit­utions
Sub-prime mortgage lending - Also called as Self-i­nsured lending
Private lending
Product sheets
A product sheet is designed to inform the mortgage agent of the terms and conditions that must be met for approval, as well as the features of the mortgage being described, including the maximum LTV, the amorti­zation and so on.
Rate sheets
A rate sheet is designed to inform the mortgage agent of the rate charged on a product, based on such factors as the LTV and the Beacon or credit score.

Submitting applic­ation and obtaining commitment

Only submit to one lender
Once an applic­ation has been submitted, the lender will, if everything goes according to plan, approve the applic­ation and provide a commitment letter. If declined, the mortgage agent must choose a different lender and begin the process anew. Given an approval, the commitment letter will contain conditions that must be met. This chapter will discuss meeting those conditions and preparing for the closing process.
How to submit
Using Origin­ation Software
Areas of review:
Cr­edit, Pr­operty, Em­plo­yment
Credit
If the applicant has any derogatory credit such as missed payments in the past or is currently in arrears on any of his or her debts, the mortgage agent must inquire as to the reason for this derogatory credit and include this explan­ation in his or her notes. Explan­ations are required if the applic­ant’s credit report contains:
• Current or previously missed payments
• Current accounts currently listed as an R9 with or without an outsta­nding balance
• Accounts closed by the credit grantor
• Account balances exceeding credit limits
• Excessive recent inquiries
• Any judgments
• One or more previous bankru­ptcies
• Any accounts now or previously in collec­tions
• Any accounts currently listed as an R7 (which indicate a consumer proposal)
• Any accounts rated a 2 or higher (i.e. R2 or higher, or I2 or higher)
Prop­erty
If there are any issues with the property, the mortgage agent must note them in his or her applic­ation submis­sion. The property provides the lender with security for its loan. If that security is compro­mised, the lender’s position is weakened. If the property has been valued by an AVM or through CMHC’s or Genworth’s automated underw­riting systems and no physical inspection of the property has occurred, any defects in the property will have been omitted. If the mortgage agent learns of any defects, he or she must invest­igate and include that inform­ation in the applic­ation submis­sion. Possible defects or areas of concern may include:
• The property having renters or boarders (if the client has not indicated that this is a rental)
• Water damage in the basement – this may be a sign of a crack in the foundation
• Water damage in the ceiling or walls - this may be a sign of a burst water pipe
• Excessive interior or exterior wear and tear that might impact the value of the property
• Evidence of UFFI or insulbrick
• Signs of insect or rodent infestation
• Signs of improper use of the property such as the presence of commercial machinery in or on the property that may indicate that the property is being used for business purposes.
Empl­oym­ent
The applic­ant’s employment affects his or her ability to repay the mortgage. Items requiring explan­ation include:
• Having several jobs over the past two or three years
• Any periods of unempl­oyment
• Additional income
• If the mortgage agent cannot verify employ­ment.
INVESTOR / LENDER DISCLO­SURE
IMPO­RTANT SEGMENT - please read in the book - crucial inform­ation to cover - cannot be summarized here
Commitment Letter
This document explains the terms and conditions of the mortgage that the lender is committed to providing along with the conditions that must be met before the lender will fund the mortgage.
The following is a list of inform­ation commonly found in a commitment letter:
• Applic­ants’ names
• Property address (address of the security)
• Mortgage amount
• Interest rate
• Payment amount
• Payment frequency
• Term
• Closing date
• Prepayment privileges
• Conditions of approval
• Terms of the approved mortgage (such as fees, appraisal requir­ements, etc.).
               

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