How to rely on the available exemptions in the Province of Ontario from the requirements to be licensed under the Mortgage Brokerages, Lenders and Administrators Act.
In Ontario, Dealing, Trading, Lending and Administering mortgages are all regulated activities, which requires licensing under the Mortgage Brokerages, Lenders and Administrators Act (the “Act”), as a brokerage, broker, agent and/or administrator. This includes holding oneself out as providing any of the services captured under the Act. Holding oneself out means that you are advertising, marketing or making it known to others that you can offer these services, and whether or not you actually do. The regulated services include soliciting, assessing, underwriting and providing information on borrowing or lending through mortgages, as well as buying, selling or exchanging mortgages, lending on mortgages and servicing mortgage payments and advances, including enforcement.
By way of caution, current licensing under the Act does not afford brokerages, lenders and administrators the ability to continue its regulated activities in other provinces, and will have to consider on a province by province basis any local licensing requirements as and when it continues its business out of province.
Many licensed mortgage brokerages in Ontario act as intermediaries for mortgage lenders, especially in the private lending space. Private lending on mortgages is regulated under the Act, as well as buying, selling or exchanging private mortgages with other lenders. These activities under the Act are referred to as trading in and lending on mortgages, and therefore require a mortgage brokerage license. Hence, private lenders that are not licensed mortgage brokerages need to rely exemptions from licensing under the Act in order to remain onside. These exemptions include section 14 and 15 under Ontario Regulation 407/07, whereby the private lender shall solely carryout their business of trading in mortgages on their own behalf through a mortgage brokerage and/or whereby the private lender shall carry on business as a mortgage lender solely through a mortgage brokerage. So long as a private lender will not be administering mortgages that are not their own, it will not require a mortgage administrator license. However, should a private lender require that their intermediary licensed mortgage brokerage also provide mortgage administration services, then that mortgage brokerage must also be licensed as a mortgage administrator. If a private lender finds itself administering a syndicated mortgage whereby it is administering the mortgage payments on behalf of all the other syndicated lenders in that mortgage, than the private lender will require a mortgage administrator license. Finally, the exemptions relied on here grant private lenders the ability to hold itself out as lenders on mortgages secured against real estate in Ontario (i.e. market and advertise as private mortgage lenders). But, unless licensed as a mortgage brokerage, private lenders cannot deal in mortgages (as defined below), except for the purpose of providing a “simple referral” as further discussed below.
Dealing in mortgages includes:
- Soliciting or attempting to solicit someone or something to borrower money which will be secured on their real estate, or to lend money that would be secured by the borrower’s real estate;
- Providing Information or attempting to provide information about a borrower to a lender for the purposes of lending on a mortgage, regardless if the lender is licensed or not;
- Assessing a borrower for a lender for the purposes of lending on a mortgage, regardless if the lender is licensed or not;
- Negotiating or arranging a mortgage on behalf of someone or something; and
- Holding oneself out as someone or something that provides the above services.
In order to deal in mortgages as a business, one must be a licensed brokerage. However, the employees and contractors of the licensed brokerage need not be licensed brokers or agents unless they are being remunerated too deal in mortgages, as an employee or contractor of the licensing brokerage.
Trading in mortgages includes:
- Soliciting or attempting to solicit someone or something to buy, sell or exchange a mortgage;
- Buying, selling or exchanging a mortgage on behalf of oneself or someone else; and
- Holding oneself out as someone or something that provides the above services.
In order to trade in mortgages as a business, one must be a licensed brokerage. However, the employees and contractors of the licensed brokerage need not be licensed brokers or agents unless they are being remunerated to trade in mortgages on behalf of the licensed brokerage, and are not trading in mortgages on their own behalf. Which means an individual may buy, sell or exchange a mortgage on their own behalf without being licensed as a broker or agent, and so long as they are not carrying on the business of trading in mortgages.
Lending on mortgages includes:
- Lending or offering to lend whereby in return the lender requires real estate property as security; and
- Holding oneself out as someone that provides loans secured by real estate.
In order to lend on mortgages as a business, one must be a licensed brokerage, however its employees or contractors need not be licensed as brokers or agents when lending or offering to lend on behalf of the lender.
Administering mortgages includes:
- Enforcing and receiving payments or advances as it relates to a mortgage, on behalf of someone else, regardless if its on behalf of a lender or borrower or otherwise; and
- Holding oneself out as someone that provides the above service.
In order to administer mortgages as a business, one must be a licensed administrator, however its employees or contractors need not be licensed as individual administrators when administering or offering to administer on behalf of the lender.
Exemptions for financial institutions
The immediate and more obvious exemptions are financial institutions that are regulated under a separate regime such as banks. These financial institutions and their directors, officers and employees do not need a brokerage, broker, agent or administrator license to provide any of the aforementioned services. Financial institutions under the Act refer only to banks formed under the Bank Act of Canada, credit unions formed under the Credit Unions and Caisses Populaires Act of Ontario, a corporation such as a trust company that is formed under the Loan and Trust Corporations Act of Ontario, or a retails association formed under the Cooperative Credit Associations Act of Canada.
Furthermore a person or entity is exempt from requiring a mortgage administrator license when administering mortgages on behalf of a financial institution or finance company. A finance company for the purposes herein is defined as a corporation or partnership that is not a financial institution and where its primary business is to provide loans or otherwise advance funds or credit, and where the finance company is also a public issuer (i.e. a public company) or is owned by or controlled by an affiliate that is a public issuer.
Exemptions for Lawyers
Lawyers licensed under the Law Society of Ontario are exempt from requiring a brokerage, broker, agent or administrator license when providing services that include dealing or trading in mortgages and/or administering mortgages. However, they are not exempt from carrying on business of lending on mortgages. Keep in mind, that this exemption in the Act does not preclude a lawyer from maintaining their license and practice requirements under their own regulator. In other words, in order to practice in real estate, which includes dealing, trading or administering in mortgages, a lawyer, among other requirements, must also be real estate insured.
In order for a lawyer to qualify for this exemption under the Act the lawyer must not solicit or hold himself out to be engaged in the activity of soliciting someone or something to borrower money which will be secured against real estate. Hence, the lawyer can engage in the other regulated activities as a lawyer on behalf of their client, including administering mortgages, but cannot hold him or herself out as or compete with licensed brokerages, brokers or agents in advertising or marketing services as someone that can arrange loans for borrowers.
Exemptions for “Simple Referrals” where there is a referral fee or other remuneration
Someone or something is exempt from requiring a brokerage, broker or agent license when referring a prospective borrower to a mortgage lender and vice versa on the condition that the person making the referral:
- first discloses in writing to the borrower:
- whether or not they will get a fee or some other remuneration, directly or indirectly (e.g. paid to another related entity) for making the referral;
- what is the nature of the relationship between the person making the referral and who they are making the referral to (i.e. the lender or the lender’s representative); and
- only provides the name, address, telephone, fax, email address or website address of the lender to the borrower; or
- after obtaining written consent from the borrower, only provides the name, address, telephone, fax, email address or website address of the borrower to the lender, and if requested the written consent to disclose this information;
If there are no referral fees or other remuneration paid to the person or entity making the referral, directly or indirectly, then the requirements above do not apply regardless if the person making the simple referral is licensed or not licensed as a brokerage, broker or agent.
Exemptions for other Persons or Entities
The following is a quick list of simple exemptions that apply to certain individuals or entities when providing any of the aforementioned regulated services:
- Trustees in bankruptcy when carrying out their duties during bankruptcy matters are exempted from requiring a brokerage or administrator’s license for that purpose only.
- When acting under the direction of a court order issued by the Superior Court of Justice the recipient or whomever may have been directed thereunder, are exempted from requiring a brokerage or administrator’s license in order to pursue the relief or directives granted under the order.
- The Easter and Norther Ontario Development Corporations, the Ontario Development Corporation, the Ontario Infrastructure and Land Corporation and the Ontario Mortgage and Housing Corporation are all exempt from requiring a brokerage or administrator’s license.
- Personal corporations of brokers or agents that are contracted with a licensed brokerage on behalf of the brokers and/or agents, are exempt from requiring a mortgage brokerage license. In this case the independent contractor corporations are only exempt if the corporation and its licensed brokers and/or agents that own or control it, solely deal in, trade in and/or lend on mortgages though the licensed brokerage that their corporation is contracted with. Furthermore, that the corporation does not represent to the public that it is a licensee and that it carries on the business of dealing in, trading in or lending on mortgages. Also, these corporations must have a majority of their equity owned and directors held by licensed brokers or agents, and that any fees generated through the regulated activities are from the licensed brokerage it is contracted with. Finally, the corporation cannot hold any funds or other assets on behalf of borrowers, lenders or investors in connection with dealing or trading in mortgages.
- Registered motor vehicle dealers under the Motor Vehicle Dealers Act are exempt from requiring a mortgage brokerage or administrator license if its only purpose is to lend money to secure on non-residential real estate whereby the borrower or guarantor are directly or indirectly a registered motor vehicle dealer or has an ownership in or is partly owned by a registered motor vehicle dealer. Furthermore that the mortgage loan is for the purpose of the business and its registration as a motor vehicle dealer, and that any administration thereof is for this type of mortgage only.
- Crown corporations of any province or federally of Canada are exempt together with their officers, directors, members and employees that act on their behalf from the requirement of both a mortgage brokerage or an administrator license. Furthermore, a person or entity is exempt from requiring a mortgage administrator license when administering mortgages on behalf of a Crown corporation.
- Consumer reporting agencies formed under the Consumer Reporting Act are exempt from requiring a mortgage brokerage license if its only purpose is to provide information on prospective borrowers to lenders in the course of acting as a consumer reporting agency and for which it does not hold itself out as dealing in mortgages.
- Registered real estate brokerages under the Trust In Real Estate Services Act of Ontario and their registered brokers or salespersons are exempt from requiring a mortgage brokerage, broker or agent license only when arranging vendor take-back mortgages in the course of a trade (purchase or sale) in real estate, and so long as they do not hold themselves out as otherwise dealing in mortgages.
- Registered dealers under the Securities Act, such as exempt market dealers (EMDs) are exempt from requiring a mortgage brokerage license only when trading in mortgages on their own behalf (i.e. not brokering trades) and only where the trade is with:
- A Crown corporation or its corporate subsidiary;
- A licensed mortgage brokerage or its corporate subsidiary;
- A financial institution as previously defined above or its corporate subsidiary;
- An approve lender under the National Housing Act of Canada;
- An administrator or trustee of a registered pension plan as defined under the Income Tax Act of Canada;
- A registered advisor or dealer under the Securities Act or a similar legislation from another province of Canada;And so long as the registered dealers do not hold themselves out as otherwise trading in mortgages.As of July 21, 2021, registered dealers are also exempt from requiring a mortgage brokerage license only when dealing or trading in syndicated mortgages that are not qualified syndicated mortgage and so long as they only deal or trade with investors or borrowers who are permitted clients, and where the registered dealer is not further relying on an exemption under the Securities Act that requires the registered dealer to be licensed as a mortgage brokerage. For the purposes herein an investor is a person or entity that invests in a mortgage (buys or exchanges or purchases an interest in). And a permitted client is:
- a Canadian financial institution or a Schedule III bank or its subsidiary for which its controls;
- the Business Development Bank of Canada or its subsidiary for which it controls;
- a person or company registered under the securities legislation in any province of Canada as an adviser, investment dealer, mutual fund dealer or exempt market dealer;
- a pension fund that is regulated by either the federal Office of the Superintendent of Financial Institutions or a pension commission or similar regulatory authority of a jurisdiction of Canada or a wholly-owned subsidiary of such a pension fund;
- an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to above;
- the Government of Canada or a jurisdiction of Canada, or any Crown corporation, agency or wholly-owned entity of the Government of Canada or a jurisdiction of Canada;
- any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
- a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec;
- a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act of Canada or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a managed account managed by the trust company or trust corporation, as the case may be;
- a person or company acting on behalf of a managed account managed by the person or company, if the person or company is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction;
- an investment fund if one or both of the following apply:
- the fund is managed by a person or company registered as an investment fund manager under the securities legislation of a jurisdiction of Canada;
- the fund is advised by a person or company authorized to act as an adviser under the securities legislation of a jurisdiction of Canada;
- in respect of a dealer, a registered charity under the Income Tax Act of Canada that obtains advice on the securities to be traded from an eligibility adviser, as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions, or an adviser registered under the securities legislation of the jurisdiction of the registered charity;
- in respect of an adviser, a registered charity under the Income Tax Act of Canada that is advised by an eligibility adviser, as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions, or an adviser registered under the securities legislation of the jurisdiction of the registered charity;
- an individual who beneficially owns financial assets, as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions, having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5 million;
- a person or company that is entirely owned by an individual or individuals referred to in the above paragraph (n), who holds the beneficial ownership interest in the person or company directly or through a trust, the trustee of which is a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act of Canada or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction;
- a person or company, other than an individual or an investment fund, that has net assets of at least $25 million as shown on its most recently prepared financial statements;
- a person or company that distributes securities of its own issue in Canada only to persons or companies referred to in all of the above paragraphs (1) to (17);
As of July 21st, 2021, a syndicated mortgage will be qualified when:
- The syndicated mortgage secures a loan on residential real estate that:
- is used primarily for residential purposes,
- includes no more than four units, and
- includes no more than one unit that is used for non-residential purposes.
- And the syndicated mortgage does not secure a debt obligation incurred for the construction or development of property.
- And at the time the syndicated mortgage is arranged, the loan amount secured, together with all other debt secured by mortgages on the same property that have priority ahead of or the same as the syndicated mortgage, assuming in all cases that the maximum amounts of any such mortgages are fully drawn, does not exceed ninety per cent (90%) of the fair market value of the property. The fair market value cannot include any value attributed to a proposed or pending development of the property.
- And, the syndicated mortgage cannot be subordinated to future mortgages or financing without the consent of each investor or lender and ensuring the requirements above are maintained.
- And, there is no existing agreement that requires any investor or lender of the syndicated mortgage to consent to future subordination of the syndicated mortgage.
- And finally, no person or entity has the ability to consent to future subordination of the syndicated mortgage on behalf of the investors or lenders of the syndicated mortgage without obtaining the consent of each lender.
- The syndicated mortgage secures a loan on residential real estate that:
- A person or entity is exempt from requiring a mortgage brokerage license if it only trades in mortgages for the purpose of securitization whereby under the Securities Act, mortgages are used to create securities that represent an interest in or obligation backed by a mortgage or pool of mortgages. Furthermore, a person or entity is exempt from requiring a mortgage administrator license when administering those securitized mortgages that constitute the assets backing the mortgage-backed security.
- When acting through a licensed brokerage or another entity that is exempt, a person or entity can trade in mortgages on its own behalf without a mortgage brokerage license, and hold itself out as doing so (i.e. marketing).
- When acting through a licensed brokerage or another entity that is exempt, a person or entity can lend on mortgages as a business without a mortgage brokerage license, and hold itself out as doing so (i.e. marketing).
- Collection agencies registered under the Collection Agencies Act are exempt from the requirement to obtain a mortgage administrator license when the administration of the mortgage payments or advances are in the course of taking steps to enforce payments by borrowers under mortgages and does not otherwise hold itself out as a mortgage administrator.