Chapter 1: Market Overview

Question 1

Mortgage Agent vs Mortgage Broker

(2)

Answer 1

**Mortgage Agent: **professional who deals or trades in mortgages for a licensed mortgage brokerage, under the supervision of a licensed mortgage broker

**Mortgage Broker: **professional who deals or trades in mortgages for a licensed mortgage brokerage. Responsible for supervising the activities of one or more mortgage agents
- each mortgage brokerage must have one principal broker to ensure that the brokerage, its agents, and brokers comply with appropriate legislation and regulations.

Brokers are able to supervise a group of mortgage agents.

Question 2

Role of a mortgage agent/broker

(1)

Answer 2

Practicing professional, licensed by FSRA, who assess a borrower’s finanical goals with respect to real estate financing, and, after detailed analysis, provides solution to meet those goals by acting as an intermediary with the appropriate lending source

Question 3

Types of Actvities of a Mortgage Broker

and other activites (5)

Answer 3

• brokering a new mortgage, collateral mortgage, line of credit, or other type of loan secured by real property through an institutional lender
• brokering the refinancing or switch of an existing mortgage through an institutional lender
• providing mortgage advice and counsel, including about renewal options
• private mortgage
• commercial mortgage

**Other Activities includes: **

Question 4

Define mortgage

(1)

Answer 4

loan secured by real property

Question 5

Define Conventional mortgage

(1)

Answer 5

Document that is registered against title of your property. This document highlights all the details of your mortgage including original borrowered amount, term length, amortization period, and interest rate.

Question 6

Define Collateral mortgage

(4)

Answer 6

Borrow beyond the initial amount needed to gain a property. Borrow up to the total value of the property and sometimes even up to 125% of the value of the property.
- documentation will only name the amount of money available to be borrowed
- used to secure line of credit

promissionary note with a lien on the proeprty for the total amount registered

Question 7

Define Line of Credit

(1)

Answer 7

Made available to a borrower but not advanced on closing (can be used whenever)

Question 8

Define Refinance

(1)

Answer 8

Borrower already has an existing mortgage. Process of revising and replacing the term of existing credit agreement

Question 9

Define Renewal

(1)

Answer 9

Staying with your current lender for another term. Opportunity to negotiate your interest rate and term, and you won’t need to re-apply

Question 10

Benefit of using a Mortgage Agent

(5)

Answer 10

1.** Choice: **acess to several different types of lenders
2. Licensed specialist: benefit of expert advice
3. Rate: access to special rates by different lenders
4. Solution: assess borrowers situation and make recommedations
5. Free, expert advice: lender pay brokerage a commision, borrower receive free advice

Discounted rate: posted rate - discounted rate = borrowers rate

Question 11

How does a Mortgage Agent get compensated

Income Potential of a Mortgage Agent (2)

Answer 11

• compensated by lender in a form of a finder’s fee or comission based on number of basis points (BPS - 1% is 100bps) multiplied by the amount of the mortgage
• private lenders have brokerage fees that would be deducted directly from the mortgage proceed

Mortgage agents can be either employees or independent contractors
Brokerage fee: charge when using a private lender

Question 12

Define Mortgage Proceeds

(1)

Answer 12

Money that is being lent to the borrower

Question 13

Define MBLAA

(mortgage brokerage, lenders, and administrator act)(1)

Answer 13

Legislation governing the industry

Question 14

Define Power of Attorney

(1)

Answer 14

Legal document in which a person gives someone else authority to make decisions about their finances

Question 15

Define Insitutational Mortgage Originator

(1)

Answer 15

Place their client with the lender by who they are employed and therefore do not have access to all the different products available in the market

Question 16

Define Mortgage Creditor Insurer

(1)

Answer 16

Upon a claim (death), the mortgage loan is paid by a one time lump sum payment to the lender

Question 17

A Brief History of Ontario Mortgage Industry

(3)

Answer 17

Intorduction of lending in the 1960s. Mortgage lending in Ontario was provided by life insurance companies.

July 5, 2021
- GDS ratio up to 39% and TDS up to 44% for borrowers who have a strong history of managing their payments
- at least one borrower must have a credit score greater than or equal to 600

Question 18

Define Sub Prime Mortgage

B Lending (1)

Answer 18

Declined by their banks and had to seek financing from private lenders

Question 19

B20 Stress Test

(1)

Answer 19

Insure that a borrower could afford their mortgage payments if their interest rate increase (+2%)

This means that even though a lender may offer the borrower a much lower rate, the borrower must still qualify at the higher rate.

Question 20

Difference beteen GDS, TDS, and LTV

GDS (Gross Debt Service), TDS (Total Debt Service), LTV (Loan to Value)

(3)

Answer 20

**GDS: **percentage of monthly household income that covers your housing cost. Must not exceed 39%

TDS: percentage of monthly household income that covers your housing cost and any other debts. Must not exceed 44%

LTV: amount of loan divided by value of property

Question 21

What entity regulates mortgage brokering in Ontario?

(1)

Answer 21

FSRA

Financial Services Regulatory Authority of Ontario

Question 22

What legislation governs the activities of mortgage brokering in Ontario?

(1)

Answer 22

MBLAA

The Mortgage brokerages, Lenders and Administrators Act, 2006

Question 23

What is the difference between a comission and brokerage fee?

(2)

Answer 23

• Comission: paid by the brokerage by a lender
• Brokerage fee: fee charged, typically for a private mortgage. Fees deducted from loan by lawyer and remitted to the brokerage

Question 24

What is the difference between an independent contractor and employee?

(1)

Answer 24

Independent contractors do not have set schedulees while employees are working for a brokerage

Question 25

Explain when and why banks began lending in the residential mortgage market?

(1)

Answer 25

In 1954 the Bank Act was changed to allow banks to lend on residential mortgages; however there was a limit to the amount of interest that they could charge. This limit was set at 6%. Unfortunately the market at the time saw interest rates at such a point that it was unprofitable for banks to lend based on that constraint, so the market remained dominated by life insurance companies until that cap was removed. That occurred in 1967 when the Bank Act was once again amended. This amendment removed the 6% cap and virtually overnight the banks became the predominant source of mortgage funds in Ontario.

Today banks account for approximately 61% of all mortgages held in Canada and have a virtual lock on mortgage lending.

Question 26

Define Sub-Prime mortgage market?

(1)

Answer 26

Borrower who does not qualify for traditional lending products

Question 27

Which type of lender is predominant lender in the Canada mortgage market?

(1)

Answer 27

• Institutional lenders, specifically banks

Question 28

What two trade associations currently operate in Ontario?

(3)

Answer 28

• AMIPROS
• CMBA
• MPC

Question 29

What designations are currently available in Ontario?

(2)

Answer 29

• CMIP
• AMP