The Dangers of Applying For a Mortgage
Through an Unlicensed Person
Sooner or later most people will be in a position to need financing for their home, either for purchasing, or renewing and refinancing for existing homeowners. Navigating the mortgage process can be complex, but working with an experienced professional can make it both easier and safer. In this article we will cover some of the important things to consider when applying for a mortgage, and the ways to reduce your exposure to the risk of getting taken advantage of, or even defrauded financially.
The Importance of Licensing
Most people might not be aware of the fact that in Ontario, mortgage professionals, like brokers, agents, and brokerages, must be licensed to ensure they meet the standards of practice and ethics. Licensing protects consumers by ensuring that mortgage professionals are qualified and accountable. This includes passing a rigorous examination process, maintaining ongoing education, carrying Errors and Omissions Insurance, and adhering to a strict code of conduct. By working with a licensed professional, you can have peace of mind knowing that they have the necessary skills and knowledge to guide you through the mortgage process. There is also the requirement that the type of mortgage recommended is the one that is the most suitable for each particular borrower.
Benefits of Working with a Licensed Broker
Working with a licensed broker provides a one-stop-shop for both mortgage options and the kind of expert advice that can help you improve your finances and look more creditworthy in the eyes of lenders. Brokers are usually independent, and aren’t obligated to recommend any particular financial institution’s mortgage products.
A licensed broker has access to a wide range of lenders and can negotiate on your behalf to secure the best possible mortgage terms. For example, a broker might be able to secure a lower interest rate, compared to your local bank or credit union, saving you a significant amount of money over the life of your mortgage.
Licensed brokers are required to stay up-to-date with the latest regulations and industry trends. This means they can provide you with the most current and accurate information. For instance, if a new government program is introduced that could save you money on your mortgage, a licensed broker would be aware of this and could help you take advantage of it.
Understanding the Risks
When it comes to securing a mortgage, it’s crucial to know who you are working with. Dealing with an unlicensed person when applying for a mortgage can pose several potential problems and actual dangers. Here are some key points to consider:
- Lack of Proper Training and Knowledge: Unlicensed individuals may not be properly trained to provide mortgage services, meaning they may not be aware of or understand the legal requirements and regulations for lending in Ontario. This could lead to incorrect or misleading advice, which could have serious financial implications.
- Lack of Regulatory Oversight: Unlicensed individuals are not regulated by the Financial Services Regulatory Authority of Ontario (FSRA). This means they do not have to comply with the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA). This act sets out the obligations and responsibilities of licensed mortgage brokers, administrators, and agents, including the requirement to deal fairly, honestly, and in good faith with consumers. Without this oversight, consumers may be exposed to unfair practices.
- No Professional Conduct Standards: The FSRA has established a Code of Conduct for the Mortgage Brokering Sector. This code sets out the professional and ethical standards that licensed individuals must adhere to. Unlicensed individuals are not bound by this code, which could lead to unethical practices and misconduct.
- No E&O Insurance: Errors and Omissions (E&O) Insurance provides several advantages to consumers. First and foremost, it offers a safeguard against potential errors or oversights made by professionals during their work. This means that if a professional makes a mistake that results in financial loss, the insurance can cover these damages. Secondly, it protects consumers against professional negligence. If a professional fails to meet the standard of care, the insurance can provide coverage. Thirdly, in the event of a breach of contract, where a professional fails to deliver on what was agreed upon, E&O insurance can provide coverage. Lastly, E&O insurance indirectly benefits consumers by ensuring a fair legal process. If a dispute with a client leads a professional service provider to court, the insurance can cover the legal costs. This means that the service provider is more likely to have the financial resources to adequately defend themselves. Moreover, if the court rules in favour of the consumer, the E&O insurance can ensure that the service provider has the financial ability to pay any damages awarded. Without this insurance, there’s a risk that the service provider might not be able to pay, leaving the consumer uncompensated even after winning the case. These benefits ensure that consumers are protected and can have peace of mind when engaging with licensed professionals. When dealing with unlicensed individuals, it’s important to note that they do not carry Errors and Omissions (E&O) Insurance. This means that if they make a mistake or act fraudulently, there may be no insurance coverage for any damages you suffered as a result. Without the protection of E&O insurance, consumers may face significant financial risk. Therefore, it’s always recommended to work with licensed professionals who carry this insurance.
- Lack of Consumer Protection When Dealing with Unverified Entities: FSRA regulates all licensed mortgage brokerages, brokers, agents, and administrators in Ontario. Borrowers can search for the broker’s name in the FSRA’s public registry available on the FSRA website. If you obtain a mortgage through unlicensed individuals or companies, FSRA cannot protect you, as it has no jurisdiction or authority to recover any funds on your behalf. If you’re suspicious about a fee, penalty or another charge you paid, seek out independent legal counsel.
- Unauthorized Activities: In Ontario, a mortgage broker’s license authorizes the licensee to deal in mortgages or trade in mortgages on behalf of one specified mortgage brokerage. By dealing in mortgages, unlicensed individuals are committing an illegal act of providing mortgage related services directly to the public without a license.
- Lack of Transparency: Licensed mortgage brokers/agents must disclose any material risks of the mortgage agreement in writing and in plain language before the client signs. Unlicensed individuals might not provide this level of transparency, which could lead to misunderstandings or misrepresentations.
- Risk of Fraud: Unlicensed individuals are more likely to engage in mortgage fraud. These fake brokers may ask for upfront fees for their services and then disappear once they receive the payment. They have no intention of providing any financing, leaving the borrower with a financial loss.
- Social Media Scams and Fake Financial Websites: Fraudsters often use social media platforms, and are known to create high-quality phishing websites that impersonate trusted financial institutions to reach a wide audience. They create fake profiles, posing as mortgage brokers, and promise unrealistically low rates to attract people.
- Identity Theft: These individuals may be involved in identity theft. Fraudsters might ask for personal information under the guise of needing it to secure the low-rate mortgage, and then use that information for illegal activities.
- Inflated Interest Rates or Unaffordable Mortgages: Unlicensed individuals might not have the borrower’s best interests in mind. They could lead borrowers to pay higher fees, inflated interest rates, or even obtain a mortgage they cannot afford.
- Syndicated Mortgage Investments: These are when two or more people invest in a single mortgage against one property. They can be extremely risky for investors, given that the project is often considered high-risk by traditional lenders. Unlicensed individuals might not fully disclose these risks.
To protect yourself, always verify the licensing status of your mortgage professional. In Ontario, you can check the Financial Services Regulatory Authority of Ontario’s (FSRA) website for this information. This simple step can save you from potential financial harm and ensure that you’re working with a reputable professional. Additionally, be wary of any deals that seem too good to be true, as they often are, and never provide personal information or pay fees upfront without thorough research.
The Role of Brokerages
Brokerages play an important role in the mortgage process. They are the intermediary between the borrowers and the lenders. In such a role, they are obligated to perform certain duties that include ensuring all transactions are conducted in a fair and transparent manner, while upholding the integrity of the process. Also, as the employers of brokers and agents, brokerages have the duty to train and supervise them to ensure their interactions with the public fall within the required legal and ethical standards. This includes providing ongoing education about industry changes, enforcing compliance with all relevant laws and regulations, and fostering a culture of integrity and customer service.
At TheBroker.ca Ltd., we are committed to providing our clients with reliable, licensed mortgage services. We are well-versed in the latest mortgage trends and regulations, ensuring you receive the best possible advice and service. We understand the complexities of the mortgage market and strive to make the process as straightforward and stress-free as possible for our clients.
In conclusion, while it might seem tempting to cut corners with the hope of getting a better deal, or trying to get approved when previously declined by legitimate brokers or lenders, and deciding to work with an unlicensed individual, the potential risks far outweigh the benefits. Working with a licensed broker like TheBroker.ca Ltd. ensures that you’re getting the most accurate information and the most suitable mortgage based on your individual situation. If you have any questions or need assistance, don’t hesitate to reach out to us through our website or call us at (519) 252-9665.
This article was brought to you by TheBroker.ca Ltd., a licensed mortgage brokerage. Our licensing status with the Financial Services Regulatory Authority of Ontario (FSRA) can be confirmed through this link.