Whether you’re looking at a traditional or private product, the dangers of unlicensed mortgage brokers can spell big trouble for borrowers. Choose the wrong one, and you can face legal issues, hidden terms, and higher fees. Understanding how to protect yourself means knowing what to look for in a reputable broker and the red flags to avoid an unlicensed one.
Work with a Licensed Mortgage Broker
The best way to avoid an unscrupulous mortgage broker is to understand how and why they are licensed. Credible brokers can work with private lenders who are not licensed themselves.
Brokerages and their agents are governed by the Mortgage Brokerages, Lenders, and Administrators Act, 2006 (MBLAA). The Act covers lenders, administrators, and mortgage brokers in Ontario. It details the standards and regulations required and provides guidelines and obligations so borrowers can understand the conditions and terms of a mortgage agreement.
The Financial Services Regulatory Authority of Ontario (FSRA) supplies the actual license. This body ensures brokers and private lenders who work with brokers adhere to the MBLAA. It’s also the go-to source for licensing and compliance requirements.
ProTip: The omissions on a mortgage broker’s website are a warning sign that you might be working with an unlicensed broker. Their contact information should include a physical address, an email, and a phone number.
What Borrowers Can Expect
Consumers can expect full disclosure of potential conflicts of interest, and all fees and loan terms. Brokerages must also clearly resolve written borrower complaints. Ultimately, the MBLAA provides guidelines to help consumers avoid unscrupulous terms and hidden fees.
- Full disclosure is essential because unscrupulous lenders can misrepresent the fine details of any loan and possibly even falsify documents. Borrowers can wind up defaulting on a loan that they can’t afford. A downward spiral can begin when a dishonest broker hides fees. Some examples include processing and administration fees that aren’t disclosed upfront.
- These brokers can be dishonest about the terms by enticing a borrower with an introductory rate that can adjust quickly and increase significantly.
ProTip: Unlicensed mortgage brokers generally skimp on information in other ways beyond missing contact information. They usually don’t bother adding guidelines, FAQ sections and other valuable resources. The ones you’ll want to deal with offer complete, detailed guides. Plus, they won’t hesitate to show you their credentials when asked.
Ask for Proof of License
Substantial proof that a mortgage broker you’re considering using is honest is the best evidence that they are licensed. There are a couple of things that you should look for.
First, the FSRA licensing certificates will show the broker’s name, license number, and expiration dates. Here’s a portal that’s under construction.
ProTip: The FSRA is clear. Mortgage fraud is knowingly misrepresenting any of the facts on an application. They even supply a list of red flags to watch for when it comes to brokers, such as waving a two-day review period.
Review the Terms Carefully
Examining the terms of a mortgage agreement can help identify unscrupulous lenders. It is also a good practice to uncover penalties and restrictions and go over other important information, such as payment deadlines.
Reviewing the terms can help uncover unlicensed lenders and the clauses that give them away, such as excessive penalties and fees. A real estate lawyer is a professional who can help you understand and clarify your rights and obligations. The same can be said for private mortgage lenders and financial advisors. Any one of these experts can help you understand the long-term impacts of any agreement and red flags to look for
Big Red Flags
A big red flag is a broker who pressures you to sign the agreement without giving you enough time to review it carefully. This is a good time to look for a mismatch between unscrupulous brokers who answer questions with personal emails, text messages, or unverified phone numbers.
ProTip: Looking at the fine print means redoing some numbers to see if they match up. Using an independent mortgage calculator to determine fees, term lengths, and rates is a good idea. Watch out for over-complicated math it could be a red flag and bad actors who are masking bad terms.
It’s essential to have even more backup after you’ve reviewed the terms.
Get Everything in Writing
One big way you can avoid these bad actors is to get everything in writing. A signed written document is a legal document that clearly outlines both party’s obligations and responsibilities.
- When everything is written down, verbal promises like fee reductions are incorporated, so there are no misunderstandings or gray areas to exploit.
- This type of document needs to outline how disputes are resolved. All the details, such as the time frames for addressing grievances and the arbitration and mediation steps, need to be included.
- A written document prevents unauthorized changes like unexpected alterations to fees, payment schedules, and interest rates.
With all the essential terms written down, a borrower is protected from a lender who reneges on agreed-upon terms or changes them without due process.
Being proactive about uncovering unethical/unlicensed mortgage lenders means knowing how and where to blow the whistle on them.
Report Suspicious Activity
There are several places where you can report suspected unlicensed brokers.
The Financial Services Regulatory Authority of Ontario (FSRA)
The public and borrowers can file formal complaints with the FSRA. There are several steps to follow, and you’ll need to collect all of the relevant information like the broker’s name and contact details and put together any written communications in a file with other documentation.
Remember, it’s essential to attach supporting documents like contracts, emails, and screenshots.
The Ministry of Government and Consumer Services (Ontario)
This Ontario government agency can issue warnings and alerts if there are multiple unlicensed activity cases. It offers resources like Consumer Protection Guidance and can refer complaints to the FSRA, although complaints should be sent directly to the FSRA where possible.
There are other government agencies that can expose suspicious activity.
The Competition Bureau of Canada
The Competition Bureau protects consumers by investigating deceptive marketing and other claims. Like the government of Ontario agency, it issues public alerts and can enforce the Competition Act to prevent fraud and advertising losses. Here’s the complaint form.
