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Could a Registry for Private Mortgage Lenders Be in the Works?
Is a registry for private mortgage lenders in the works?
Perhaps. The Ontario Ministry of Finance recently reviewed the Mortgage Brokerages, Lenders, and Administrators Act, 2006 (MBLAA), providing recommendations to protect and modernize Ontario’s mortgage industry.
Among the recommendations was a registry for private mortgage lenders.
“…more consumers are now forced to seek mortgage loans from private lenders, often at much higher interest rates,” the report’s introduction stated.
According to the report, economists estimate that private lenders have increased their market share in housing markets like Toronto by 50% over the past year. They now account for almost a tenth of Canada’s overall mortgage market.
Recommendation #6 in the report, entitled “Incentivising Registration for Private Lenders,” focused on the issue.
“Because these lenders are unregulated, governments have no clear line of sight on their activities and may not know the extent of their market participation,” Recommendation #6 stated. “This has resulted in a lack of understanding of the level of financial risk in the private lending sector.”
The report pointed to recent legislation from the British Columbia government indicating the Canadian real estate market is vulnerable to money laundering. The authors recommended that the Ontario regulatory authority and government should have additional insight into the private lending sector to support the broader fight against fraud and complement other initiatives already in place.
“In Ontario, the MBLAA allows private lenders to perform mortgage lending, but only if they
work through a licensed brokerage,” the report states.
“This requirement applies even for lenders that exclusively do business with large corporations or high net worth individuals. The MBLAA also requires that mortgage brokerages, brokers and agents employ a high level of due diligence toward preventing fraud and other illegal conduct in the course of a mortgage transaction. These requirements represent preventative measures against money laundering via real estate transactions.”
The report noted that private lenders currently represent a “relatively small” portion of the outstanding mortgages in Ontario, but that market share has grown in recent years.
“According to 2017 FSCO data, private lending accounted for approximately 8% ($10.6 billion) of the total dollar value of all mortgage transactions reported by mortgage brokerages,” the report states.
That figure grew by almost 77% from the 2014 figure of $6 billion. The number of brokerages that reported using a private lender during the same period increased by 11%.
For more insight into how private lending has grown in Ontario, read the Teranet Market Insights Report, which delved into the topic in the fifth edition.
The report authors ultimately recommended that “the Ministry of Finance work with FSRA to create a registration regime for private/unregulated lenders that meet certain monetary or activity thresholds.”
“Registration could also be undertaken voluntarily by an entity if it does not meet these
Unlike mortgage brokers and agents, if registered with FSRA and “lending to sophisticated entities,” private lenders would be able to carry out activities without the need for licensing under the MBLAA and without the requirement to work through a licensed brokerage.
The Financial Post reported that the Ontario government is looking at 2020 for any registry but is still in the consideration stages.
“We spoke to non-private and private lenders,” Stan Cho, Parliamentary Assistant to the Minister of Finance and co-leader of the review, said. “And really it’s something that the industry overall wants, because it is a growing sector of the market and it’s something that is here to stay.”
Share your opinion — is a provincial registry for private lenders the right move? What challenges or opportunities does it present? Let us know your thoughts on social media. Purview is on Facebook, Twitter, and LinkedIn.
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