Mortgage Broker Relationships with Borrowers and Lenders—Your Responsibilities
| May 24, 2022
by Gary Siegle, RECA Regulatory Compliance Advisor, Mortgage Brokers
There are many factors and variations related to a mortgage broker’s role in their relationships with both borrowers and lenders.
Since brokerages are licensed to assist borrowers in securing a mortgage as well as assist lenders in finding borrowers, it’s not always clear where their responsibilities to each party lie. To complicate matters further, mortgage brokerages can also act as an intermediary between borrowers and lenders. Depending on the relationship option the brokerage chooses their role will carry different obligations.
Ultimately, mortgage brokers are responsible for ensuring that whichever relationship role is chosen is clearly understood by all clients and third parties.
Brokerages can use RECA-developed service agreements to assist in making the relationship and compensation disclosures when representing borrowers or lenders, or when acting as an intermediary.
When representing the borrower, they are the client and brokerages must act in their best interest at all times.
When representing the lender, they are the client and brokerages must act in their best interest at all times. Mortgage brokers typically only represent lenders who are private lenders. In fact, RECA requires brokerages represent private lenders when they are dealing directly with the private lender. In these situations, the borrower is a customer (not the client) and must sign the Borrower Disclosure and Consent form to clarify they are not represented in the transaction.
Brokerages cannot represent the lender and borrower at the same time.
When a mortgage brokerage is not representing the lender or the borrower, it can act as an intermediary between them, offering mortgage products from multiple lenders to the borrower.
Many brokerages choose the intermediary relationship and have the borrowers sign the Intermediary Written Service Agreement. In this type of relationship, brokerages may not offer advice, make recommendations or advocate on behalf of the borrower. Brokerages must ensure the borrower understands and is comfortable with how an intermediary relationship works.
The relationships between a mortgage brokerage, its borrowers, and lenders can be confusing.
The bottom line is brokerages must choose which relationship option works best for their clients’ and customers’ specific circumstances and maintain the corresponding relationship guidelines set forth for each specific arrangement.
Finally, if circumstances change and the chosen relationship is no longer appropriate, the brokerage should enter into a new Written Service Agreement reflecting the current situation.
For more information on defining borrower and lender relationships, brokers are encouraged to review the Mortgage Brokerage Relationship Options information bulletin or reach out to Gary Siegle, Regulatory Compliance Advisor at gsiegle@reca.ca.
Becoming a Private Lender
Likely due to the increased activity in the Alberta real estate market, there has been an increase in inquiries from consumers and licensees who are interested in more information regarding becoming a private lender.
Before becoming a private lender or representing a private lender directly, brokerages should check with their Errors and Omissions Insurance provider to determine if that activity is covered by their policy.
When a mortgage broker is involved in a mortgage deal where they decide to use personal or brokerage funds, there are written disclosures required by the Real Estate Act Rules regarding mandatory conflict of interest disclosures.
