The Role of an Agent for a Private Lender
| August 31, 2023
By Gary Siegle, RECA Regulatory Compliance Advisor, Mortgage
Mortgage brokers play a crucial role in facilitating transactions between borrowers and lenders. While the relationship between you and your borrowers is commonly understood, a relationship that often gets overlooked is when licensees act on behalf of lenders, particularly private lenders, during mortgage transactions. RECA’s Information Bulletin sheds light on the vital role mortgage brokers play in these transactions and your obligations in the lending process should you choose to engage in an agency relationship representing a private lender.
Defining your Role
Mortgage brokers act as agents of the lender when representing lenders during mortgage transactions. In these types of transactions your primary function is to ensure the lending process adheres to legal and ethical standards, while protecting the lender’s best interests. When a licensee chooses to represent a private lender, the mortgage brokerage may only represent the lender, while the brokerage treats the borrower as a customer. Borrower customers must sign a consent form acknowledging they are a customer and not represented by the brokerage.
Legal Obligations and Regulatory Framework
As licensees, mortgage brokers must comply with both federal and provincial laws that govern mortgage transactions and ensure their lenders’ interests are safeguarded. All relevant parties must sign a written service agreement that clearly shows all terms and conditions.
Key duties and responsibilities of mortgage broker acting for lenders:
- undivided loyalty: you must always act in the lender’s best interest
confidentially: you must keep information confidential, even after your relationship with the lender ends - disclosure: it is essential to provide clear and accurate information. This includes disclosing any potential conflicts of interest
- obedience: you need to obey all the lender’s lawful instructions
- accounting: the brokerage must account for all money and property they receive while acting on the lender’s behalf
Compensation and Fees
Compensation for these types of transactions usually comes in the form of commissions, typically paid by the borrower. It is important to be transparent upfront when disclosing your compensation structures to all parties involved.
Conclusion
Mortgage broker licensees play an essential role in the lending process when acting as an agent for a lender. Your duties are extremely important and ensure legal compliance, transparency, and fair dealings between lenders and borrowers. Above all, you are there to protect the lender’s interests. I encourage you to familiarize yourself with, and follow, the guidelines in this Information Bulletin. Ensuring you understand your role as an agent for a private lender upholds the integrity of the mortgage industry and fosters trust among all industry stakeholders.
If you have any questions on the Information Bulletin or any transaction where you are representing a lender, please reach out to gsiegle@reca.ca.
