At its May 6, 2009 meeting, the Real Estate Council of Alberta (RECA) approved a recommendation put forward by its Mortgage Brokers’ Advisory Committee (MBAC) that RECA remain the regulator of mortgage brokers who are licensed by RECA pursuant to the Real Estate Act and who deal in traditional syndicated mortgages in Alberta.

“Traditional” syndicated mortgages are arm’s-length transactions where the value of the mortgage does not exceed the market value of the land being secured for mortgage purposes.

Council also approved a recommendation to enhance its regulation of all licensed mortgage brokers that represent lenders.

Currently, the Alberta Securities Commission (ASC) has an exemption in place from its registration and prospectus requirements for individuals dealing in all types of syndicated mortgages who are licensed as mortgage brokers with RECA. ASC has indicated to RECA its intention to remove the exemption in Fall 2009.

RECA received a letter from ASC dated May 5, 2009 indicating the ASC will proceed with its removal of the exemption for mortgage broker industry members dealing in syndicated mortgages, regardless of RECA’s proposal to remain as the sole regulator of mortgage broker industry members who deal in syndicated mortgages. RECA met with ASC representatives and provided the ASC with its proposed regulatory model for syndicated mortgages prior to the May 5, 2009 letter. RECA representatives continue to discuss the issue with the ASC.

Attempts to avoid dual regulation

RECA developed regulatory standards for syndicated mortgages through its MBAC in consultation with industry members that deal in syndicated mortgages. The Committee created a sub-committee of industry members dealing in syndicated mortgages to establish standards that meet appropriate consumer protection levels.

If the ASC proceeds with its proposal, many mortgage brokers licensed by RECA who deal in traditional syndicated mortgages would be subject to regulation by two regulatory bodies with two different pieces of legislation (the Securities Act and the Real Estate Act) for the same business activity. Licensed mortgage brokers who deal in syndicated mortgages have made it clear they are opposed to a regulatory environment in which they are regulated by two different regulatory organizations.

In addition to the confusion that will exist among consumers and industry members, mortgage brokers are concerned with the potential for duplication and overlap as well as the added costs they will incur if ASC becomes involved in regulating their activities. These costs could be significant, particularly for smaller traditional syndicated mortgages.

Council believes there should only be one regulatory body involved. Because RECA regulates all other aspects of the business of mortgage brokers, it believes it is in the best position to provide responsible regulation of its industry members who deal in traditional syndicated mortgages.

Legislative changes required

Legislative changes to the Real Estate Act and/or the Real Estate Act Rules will be required regardless of how this matter is resolved. Should RECA remain the regulator of mortgage broker industry members who deal in syndicated mortgages, the definition of mortgage will require an amendment to clarify RECA’s jurisdiction.

Alternatively, if the ASC proceeds with its proposal to remove the exemption for mortgage brokers, and if it is determined that RECA will not regulate mortgage brokers when they deal in traditional syndicated mortgages, legislative amendments will be required to specifically exclude all types of syndicated mortgages from the definition of “mortgage” in the Real Estate Act. This would clarify that RECA would not be involved in licensing and regulating the activities of licensed mortgage brokers when they are dealing in syndicated mortgages.

In addition, legislative amendments may be required to clarify that consumers, when investing in syndicated mortgages through mortgage brokers registered with RECA, will not be able to apply to RECA’s Assurance Fund for compensation as dealing in syndicated mortgages would no longer fall under the jurisdiction of the Real Estate Act. RECA wants to ensure that if it is not the regulator of dealing in syndicated mortgages, it should not be the body to provide compensation to consumers affected by dealings in syndicated mortgages.

RECA continues to discuss this matter with ASC representatives, and will provide updates to industry members as the situation progresses.

 

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