Client Update: Mortgage Regulation Act – the new regime
Brian Tabor, QC and Simon McCormick
In May 2012, the Nova Scotia Legislature passed the Mortgage Regulation Act (“MRA”). The MRA has not yet come into force, but, when it does, it will replace the Mortgage Brokers’ and Lenders’ Registration Act and, in conjunction with the regulations that will be passed pursuant to the MRA (the “MRA Regulations”), will establish a new regulatory regime for mortgage brokerages, mortgage brokers, associate mortgage brokers, mortgage lenders and mortgage administrators.
The MRA is expected to come into force before the end of 2018. A draft of the proposed MRA Regulations (the “MRA Draft Regulations”) was released in September 2017. This Client Update is based on the MRA and MRA Draft Regulations, which are subject to change pending promulgation.
General Features of the MRA and the MRA Draft Regulations
Subject to certain exceptions, mortgage brokerages, mortgage brokers, associate mortgage brokers, mortgage lenders, and mortgage administrators will need to be licensed in order to conduct business in Nova Scotia (MRA, s. 12(2)). Under the MRA, there will be different classes of licences for mortgage brokerages, mortgage brokers, associate mortgage brokers, mortgage lenders, and mortgage administrators (MRA, s. 12(1)), and different rules will apply to licensees who hold different classes of licences.
Applicants will need to satisfy the criteria and meet the requirements outlined in the MRA and the MRA Regulations. The proposed Lender, Brokerage, Broker and Administrator Licensing Regulations (the “Licensing Regulations”), which are included in the MRA Draft Regulations, outline the criteria that prospective licensees or licensees will likely be required to satisfy in order to acquire or renew a particular class of licence.
Licences issued pursuant to the MRA will likely need to be renewed annually. The Licensing Regulations provide that licenses will expire on October 31 in the calendar year following the year in which the licenses were acquired or renewed (Licensing Regulations, s. 8).
The MRA will not apply to persons or classes of persons who are exempted from its application by the MRA Regulations (MRA, s. 3(11)).
The proposed Mortgage Regulation Act Exemption Regulations (the “Exemption Regulations”), which are part of the MRA Draft Regulations, list the persons and classes of persons who will likely be exempted from the application of the MRA. These persons and entities include:
- banks and authorized foreign banks (s. 3(a));
- trust and loan companies (s. 3(b));
- cooperative credit associations (s. 3(c));
- insurance companies (s. 3(d));
- provided that certain conditions are met, persons who refer prospective borrowers to mortgage professionals and vice versa (ss. 3(g)-(h), 4); and
- persons who undertake mortgage brokering or mortgage lending activities with respect to mortgages that are each worth more than $1,000,000, provided that:
• the Cost of Borrowing Regulations do not apply to the mortgages;
• the investors in the mortgages are not private investors or, if one or
more of the investors in the mortgages are private investors,
licensees or exempted persons broker the mortgages on their behalf
The Exemption Regulations also suggest that there will be a number of partial exemptions. In certain circumstances, for instance, lawyers, trustees in bankruptcy, and other persons will likely be able to act as mortgage brokers or mortgage administrators without being licensed (Exemption Regulations, s. 5). Individuals or entities will also likely be able to act as mortgage lenders without being licensed provided that they lend their own money and that, in any 12 month period, they undertake mortgage lending activities with respect to four or fewer mortgages that are cumulatively worth less than $1,000,000 (Exemption Regulations, s. 6(a)). Finally, credit unions will likely be able to act as mortgage lenders without being licensed (Exemption Regulations, s. 6(b)). However, as these are partial exemptions, many of the provisions of the MRA and the MRA Regulations will still apply to persons who are partially exempted from the application of the MRA and the MRA Regulations.Disclosure, reporting, record-keeping and standards of conduct
When the MRA comes into force, people and entities that employ mortgage brokers, broker mortgages, provide mortgage loans, or administer mortgages will be required to comply with numerous disclosure, reporting, and record-keeping requirements. While some of these requirements are included in the MRA, many of them are outlined in the MRA Draft Regulations, namely the:
- General Disclosure Regulations;
- Cost of Borrowing Disclosure Regulations;
- Reporting Requirements Regulations; and
- Record-keeping Requirements Regulations.
In addition, licensees will be required to comply with prescribed standards of conduct. The MRA Draft Regulations include standards of conduct for each class of licensee.
After the MRA comes into force, it will be an offence for a person to fail to comply with the MRA, the MRA Regulations, or an order given by the Registrar (MRA, s. 69(1)). Administrative penalties may be imposed by the Registrar in lieu of charging someone with a summary conviction offence (MRA, s. 72(2)).
An individual who is found guilty of a summary conviction offence under the MRA may be ordered to pay a fine of up to $500,000, be imprisoned for up to one year, or be both fined and imprisoned (MRA, s. 69(3)(a)). A corporation that is found guilty of an offence under the MRA may be ordered to pay a fine of up to $1,000,000 (MRA, s. 69(3)(b)). Finally, directors and officers of a corporation may be convicted of an offence if the corporation has violated the MRA or the MRA Regulations (MRA, s. 69(4)).
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