Module 1: History Mortgage typically 25 years, up to 30 years for conventional. Locked in long-term Fully amortized mortgage before, now shorter term; partially amortized mortgage. Module 2: Terminology Mortgage; is a loan or debt in the form of a charge on a property as security for repayment so called Mortgage Charge, where the charge is on the property. A mortgage charge contains a promise to pay the loan: 1) interest rate charged, 2)mortgage payment amount, 3) the date of first payment, 4) additional requirements to maintain the mortgage in good standing with the lender. The mortgage charge also gives certain rights to the party that gives the mortgage, such as the right to sell the property if the loan is not repaid as agreed. The borrowers who are registered on the mortgage are also registered as owners of the land. - Mortgagee; is the lender; the one receives payments. This can be also be a trustee or broker on behalf of a lender. - Mortgagor; is the borrower; the customer; the one received the mortgage funds; provide their property as security to the lender. More than one borrower; co-borrower. It can be interchanged. Both people are equally responsible for the requirements set out in the mortgage charge. Terms in the mortgage charge; A mortgage charge is registered on the mortgagor’s property as security for repayment of the mortgage to the mortgagee(lender) - Collateral; The collateral can also be called the property, mortgaged premises, or mortgaged property. This refers to the security by which the mortgage charge is based upon, which is the land and any improvements made to it, such as building or house. If mortgagor is unable to maintain the mortgage charge agreement in good standing, the mortgagee will take legal action to obtain the collateral as repayment of the loan. - Covenant: is a promise or undertaking by a mortgagor to uphold in a mortgage charge agreement considered the mortgage covenants. The main covenant is the mortgagor’s promise to repay the mortgage. Other covenants include the mortgagor’s promise to maintain adequate property insurance, pay the property taxes on time, and maintain the property in a good state of repair. Mortgagees can set ou other covenants within the mortgage contract. - Guarantor: is a person that provide their financial guarantee on the mortgage charge agreement, but has no legal right to the property is a guarantor. Although guarantors are not on the title to the property, they are still 100% responsible for the covenants required in the mortgage. Common transactions with guarantors are where a parent provide their guarantee for a mortgage for their son or daughter, but does not want to be on title to the property. Property related terms - - Land: All land in Canada owned by the Crown, or in other words the government. Under common law, the ability for a person to own land is called “fee simple”, which is defined by Merriam Webster as: “a fee without limitation to any class of heirs or restrictions on transfer of ownership”. The owner of land as fee simple is subject to responsibilities such as taxation, expropriation, law enforcement, and escheat (the transfer of land to the Crown in the event there is no heir) Property: Real estate is made up of land and all permanently affixed improvements made to it, such as a building, water and sewage access, and utilities. Real Property is the total benefit of ownership of Real Estate, which includes the ability to have peaceful enjoyment of the land and its improvements. - Personal Property: Items on the property that are movable or not permanently affixed are considered personal property. e.g: appliances, furniture, electronics, and clothing. Anything movable. Mortgage payment terms - Term: the duration or length of time of a mortgage charge agreement is considered the term of the mortgage. This how long the covenants and conditions of the mortgage are in effect, such as the mortgage payment and interest rate. Typical term: 1 year to 5 years, and in some cases 10 years. It can be longer depending on the agreement made between mortgager (burrower) and mortgagee (lender) - Amortization: the duration or length of time it takes for the mortgage to be fully paid out to $0 is considered the amortization period. Typical amortization periods are 25 years long. it is important to note that for a mortgage to be paid out in full in 25 years requires that all factors are equal through a 25 year period. In some cases, borrowers have accelerated repayment arrangements that will decrease the life span of the mortgage. In other cases, borrowers may increase their mortgage through a refinance, which will lengthen the life span of the mortgage. Borrowers can ask for a shorter amortization if they prefer to pay off their mortgage earlier. This would be in the case of seasoned burrowers who are taking a mortgage on their home that is free and clear (i.e. does not have a mortgage). Borrowers can also ask for a longer amortization , up to 30 years, however the requirement is that they have a minimum of 20% as a down payment or equity in the property (Equity is the difference between the value of the property and the existing mortgages). Commercial mortgages, which are mortgages on properties that are used as businesses, retail, or apartment buildings, can go up to 40 years amortization. - Installment: the repayment of a mortgage is done in installments, which can be monthly, biweekly, weekly. Payment frequency. Mortgage Features - Closed vs Open: An open mortgage can be paid off in full without any prepayment charges (penalty) A closed mortgage; a penalty applies if the borrower(mortgagor) pays off the mortgage in full early. Typically, an open term comes with a higher interest rate than a closed term because of the risk to the lender that the mortgage will be paid off earlier. - Pre-Payment Privileges: For closed terms mortgages, a mortgagee may offer pre-payment privileges that allow the borrower to pay down a portion of the mortgage. This can be through set amounts of lump sum payments, up to 20% of the principal mort amount or double up payment. This way no penalty. - Renewal: can renew at the end of the term, however, under new conditions and covenants. In most cases, the rate will be adjusted to reflect the current interest rate environment. In some cases, mortgagee may adjust their covenants, such as adding a covenant that does not allow the property to be rented out. Federally regulated financial institution must provide their borrowers with a renewal notice or a notice to not renew, at least 21 days before the end of the term. Renewal is not guaranteed tho. - Refinance; equity out. New terms, conditions, and covenants. A new mortgage to pay out the existing. Penalty, interest rate change. Sometimes the lower rate offset the penalty. Valuable advice. Interest Rate Terms. - Interest Rate is compensation that a mortgagee receives from a mortgagor for the use of the mortgage fund. Posted rates; advertised rates to the general public. Discount rates; customer pricing; negotiate down to be able to attract new borrowers. Good credit, stable income, governed by the Canada Interest Act. - Fixed Rate: 5 year fixed, 1 year fixed, so on. Interest rate is compounded. Variable Rate: benchmarked on the prime lending rate, with an increase or decrease, and is applied upon the mortgage balance throughout the term. P + xx.xx - Prime Rate; the prime lending rate is the annual interest rate that mortgagees use to set interest rates for variable loans and lines of credit. May vary from one institution to the next, set by financial institutions in a competitive fashion, based upon the overnight lending rate that is set by Bank of Canada. The overnight lending rate is the average interest rate that the Bank of Canada wants to see in the marketplace for one-day (overnight) loans between financial institution. The reason why banks lend overnight to each other is to balance their books at the close of each business day. - Bank of Canada Rates: The role of the Bank of Canada as Canada’s central bank is to “promote the economic and financial welfare of Canada”, and this is defined in the Bank of Canada Act. The BoC is a crown corporation belonging to the federal government is Canada’s central bank, but has independence from the government that carry out their responsibilities in the best interest of Canada. For the mortgage industry, the biggest impacts are how they set the target for the overnight lending rate, which is normally announced eight times per year. Determined through consensus by the BoC’s Governing Council. BoC also publishes a Conventional Mortgage 5-year rate that is updated on a weekly basis. Module 3 Conventional; minimum of 20% of the purchase price as a down payment. High ratio; insured mortgage, less than 20 % down payment. 5% bare minimum. - Mortgage loan insurance requires a premium to be paid by the borrower to compensate lenders if they default on repaying their mortgage. 5 c’s 1. Character; type of person, reliable, honest, willingness, risky? Behavior. 2. Capacity; ability to repay, emp, income, qualifying ratios, how long it has occurred in the past. History, likeliness that will continue in the future. 3. Capital; down payment. The risker, the more a lender may ask for in capital, net worth 4. Credit; bureau assessment, past records of repayments, debt obligations, employers info, credit seeker? 5. Collateral; is being used to secure the mortgage, which can be a purchase, refinance, or renewal. Consideration for the collateral may include where it is located, its current condition, how it is being used (rental vs owner-occupied, and how marketable it is. Which of the following is considered when valuing real estate? Municipal Water access House Paved Driveway Trees Bare land is not considered (not developed) Terms and amortization Term is the length of time the lender has the interest rate set for the mortgage Amortization period is the period of time it takes for the borrower to pay the mortgage off completely. Which Act governs how lenders can charge interest on mortgages in Canada: Interest Act. Which government body sets the overnight lending rate in Canada: Bank of Canada. Chapter 2: Foundational knowledge of mortgages, mortgage funds and mortgage types. Module 1; mortgage funding sources. - Financial institution or private individuals. Private individuals are normal people that have money that they can invest, which can be one-to-one, many-to-one, or many-to-many. 7 types of mortgage lending organizations 1. Banks; chartered, under governance by the fed govt, the minister of finance over sees the legislative component for banks, which includes the Bank Act, and the Office of the Superintendent of Financial institutions regulates banks to ensure that they adhere to the legislation. Able to lend money against the deposits(money-in) Profit determined by the spread between how much they pay their clients for investment yields and how much they get from lending out money (money-out) 5-year, 10-year bond. The more that a bank needs to pay for a bond, the more they will charge in interest rate for mortgages. Internally or through broker channel. A second way that banks participate in the brokerage industry is by investing in other mortgage companies by purchasing their mortgages, through whole-loan sales. 2. Mortgage Finance Companies; predominately have mtgs as their financial transactions, also known as monoline lenders or mortgage bankers. No money in/investment activities, reply upon whole-loan sales or Mortgage Backed securities programs. Operate both in the prime and “sub-prime” or “alternative” business, thus providing more options to the mortgage brokerage industry. E.g alternative mortgages may be borrowers with variable income or borrowers that were previously declare bankruptcy, they would ask for more down payment and ensure that the collateral is highly marketable. - A Lender; standard income, min 5% down, credit 650 or above, any residential location B lender; variable income, service ratios higher than normal guidelines, min 15%, credit 550, near major city. Private lender; more attention on the strength of the collateral, flexibility in service ratio, min 20%, no min credit score, anywhere, but highly marketable. 3. Credit unions; regulated from FSRA, member, received benefits if profitable, cash payments, discounts. - Closed credit unions; only for a particular community. - Open credit unions; anyone. Prime lenders, make exceptions case by case. 4. Life insurance companies; receives premium from their insured clients, and pay their claim. - Some offer prime mtgs by leveraging their premium cash flow. - Some have their own direct mtg sales force. 5. Private lenders; private individuals and pools of individual consumers, not inst or companies. Flexible. - Equity take out, second position, maybe. - Credit issue, complex needs, purchase of land to build a house, tear down and rebuild. - Construction mtgs 6. Mortgage investment companies - A form of private funds, where an incorporated company polls funds from private investors and bank financing together and lends the funds as mortgages. - 1973, only finance real property in Canada, at least 50% of their assets must be invested in res mtgs or insured deposits, and pay no corp taxes when all of their income is shared as dividends to their shareholders. - Dividends tax sheltered, deferral to increase the flow of mtg funds/opportunity for small investors to participate in the residential and real estate market. 7. Syndicated Mortgages; two or more persons are lenders/investors. - Qualified - Non-qualified - Disclosure requirements - Min investment limits. - Required waiting period Qualified; 1. Negotiated or arranged through a mtg brokerage. 2. Secures a debt obligation on property that, - Is used primarily for residential purposes - Includes no more than a total four units, and - If used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes. 3. Does not exceed 90 percent of the fair market value of the property relating to the mtg, excluding any value that may be attributed to proposed or pending development of the property. 4. It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage. 5. The rate of interest payable under it is equal to the rate of interest payable under the debt obligation. - If not met all of 5 req, defined non-qualified, if the syndicated mtg secures a debt obligation incurred for the construction or development of property, it is considered non-qualified. - New forms required; 3.0 investor/lender info, 3.1 suitability assessment, 3.2 disclosure statement, duty of care and diligence to verify investor’s eligibility to invest, an investment limit of $60k in a 12-month period preceding a proposed syndicated mortgage investment transaction. - A min of 2 days as a waiting period, or cooling off. Other sources of mtg funds. Pension funds Trust companies Farm credit Canada Government/CMHC/Business development bank of Canada(BDC) 17 types of MTG. 1. Residential; for home people to live in, single family house, condo, duplexes, triplexes, fourplexes, townhouse, cottages, rural acreage properties, hobby farms. 2. Commercial & Industrial; residential with 5 units or more, or are used for commercial purposes, shopping malls, offices Industrial; manufacturing businesses such as a factory. Profitability of the business operating in the property as part of underwriting process/risk assessment. 3. Equity take-out/Refinance; 4. HELOC; instaed of refi for equity take out, heloc. 65% revolving. 5. Umbrella/Blanket/Wraparound; a big mtg that spans multiple properties, requires multiple legal descriptions registered on one mortgage charge agreement. 6. Draw; construction draw. A lender approves the total mortgage amount based upon the future value of the real estate once 100% built, inspection report required. 7. Interim Financing/Bridge; borrow money against the firm sale of their existing home. No longer than 90 days, required firm sale. 8. Participating; common in commercial, where the lender has interest in the equity or the revenues generated from the real estate, either the lender receives a portion of the proceeds upon the sale of the property or the lender receives a portion of the rent receipts from the units within the property. 9. Discount; just regular mtgs. Discounted rates vs posted rates. 10. Portability; port, transfer the exiting mtg onto the new mtg with new funds or equivalent amt, however, if the client is looking to downsize, they may be subject to penalty. 11. Agreement for Sale vs Vendor Take Back; need more info. 12. Improvements; aka purchase plus, adding the cost of reno. Gotta be 100% complete. 13. Small rental; has 1 to 4 units only, 5 units or more is considered commercial, the max LTV 80%, private lender may consider not more than 85%. 14. Reverse; 55 years or older, reverse mtg, LTV requirements 40% to 55% 15. Collateral; lenders register a collateral charge on the property that stays at that amount of the life of the mortgage charge, within the same mortgage charge, burrow more, not needing to pay legal fees to discharge and re-register a new mtg.* need more clarification. 16. Switch; borrower wants to switch their mtg to another lender. 17. Existing; can be assigned to new lenders as a switch. List of designated class of investors; syndicated mortgages; the investor should not be part of a designated class of investors; either private mortgage or syndicated mortgage transactions both important. 13 different designated class of investors: Each are mutually exclusive of each other. 1. 2. 3. 4. 5. 6. 7. 8. The crown in right of Ontario, Canada or any province or territory of Canada. A brokerage acting on its own behalf. A financial institution. A corporation that is a subsidiary of a person or entity of a crown entity, a brokerage, or a financial institution. A corporation that is an approved lender under the National Housing Act(Canada) An administrator or trustee of a registered pension plan. A person or entity who is registered as an adviser or dealer under the Securities Act. A person or entity who is registered under securities legislation in another province or territory of Canada. 9. A person or entity, other than an individual, who has net assets of at least $5 mil as reflected in its most recently-prepared financial statements and who provides written confirmation of this to the brokerage. 10. An individual who, alone or together with his or her spouse, has net assets of at least $5 mil and who provides written confirmation of this to the brokerage. 11. An individual who, alone or together with his or her spouse, beneficially owns financial assets that have an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 mil and who provides written confirmation of this to the brokerage. 12. An individual whose net income before taxes in each of the two most recent years exceeds $200,000 or whose net income before taxes in each of those years combined with that of his or her spouse in each of those years exceeds $300,000, who has a reasonable expectation of exceeding the same net income or combined net income, as the case may be, in the current year and who provides written confirmation of this to the brokerage. 13. A person or entity in respect of which all of the owners of interests, other than the owners of voting securities required by law to be owned by directors, are persons or entities described above. Module 4 – syndicate mortgages tip sheet for consumers the risks: No guaranteed high return. Although some companies or individuals offering syndicated mortgage investments may say they offer ‘guaranteed’ high returns, it is actually against the law to do so. In general, the higher the rate of return, the higher the risk of the investment. A lineup for repayment. Often, at minimum, you are second in line to be paid, behind any bank that provides a loan for the project. If the project fails, there may not be any money left over to pay you. You may even be further back in line behind other investors. ‘Secured’ does NOT mean guaranteed. Some advertisements promote SMIs as ‘safe’ or ‘fully secured’. It is true that your investment will be used to create a mortgage that is registered and secured directly with the land or building associated with that mortgage. But remember, if something goes wrong with the project – and the value of the security is limited to the value of the land – you may rank behind other lenders and investors and may not get your money back. This is because the value of the land may be only enough to pay these prior-ranking lenders. No investor protection fund. Syndicated mortgage investments are not backed by the Government of Ontario or any other investor protection fund; there is no way to guarantee you will get your money back. Lack of liquidity. If you want to withdraw your money before the end of the term, there is no assurance that there will be a market for the resale or transfer of the mortgage. Your rights and responsibilities Check for a license. Only mortgage brokers and agents licensed with FSCO can engage in syndicated mortgage transactions, and only licensed mortgage brokers (not agents) can sign the required forms. Find a licensed broker, agent or brokerage by checking FSCO’s list. Ask where you are in line for payments. If something goes wrong with the project, you need to know which lenders and investors the borrower will repay, and in what order. Ask whether the syndicated mortgage is a first, second or subsequent mortgage; this is important because if the project fails, the first mortgage would receive any proceeds from the liquidation first. Second and subsequent mortgages only receive payments if and when the first mortgage has been fully paid off. Ask about the property value. Your security is only as good as the value of the property. Ask to see the appraisal the brokerage used to determine the value. You want to ensure the appraiser has valued the property in its current "as is" state without any assumptions concerning the successful completion of the property. If the appraiser has made such assumptions, the sale price of the undeveloped property would likely be lower than the value indicated in the appraisal. This would create more risk in terms of recovering your investment. For more complex SMIs as of July 1, 2018, your mortgage broker must provide you with a property appraisal prepared by a member of the Appraisal Institute of Canada in accordance with the Canadian Uniform Standards of Professional Appraisal Practice. Get independent advice. You are strongly advised to obtain independent financial and legal advice from someone not connected to the investment, before investing in a syndicated mortgage. This includes getting professional advice on how your investment could impact your income tax. Investment limits. For more complex SMIs as of July 1, 2018, some investors and lenders may not be able to invest more than $60,000 over a 12-month period. Read and understand all associated paperwork. Your mortgage broker must complete investor/lender disclosure Form 1 as listed on FSCO’s website, and provide it to you. The brokerage must also keep appropriate documentation on file, including records that detail discussions with you. For more complex SMIs as of July 1, 2018, your mortgage broker must complete investor/lender Forms 3.0, 3.1 and 3.2 as listed on FSCO’s website and provide them to you. Form 3.0 collects information about you that will help the mortgage broker determine if a particular investment is suitable for you. Form 3.1 documents your broker’s analysis of why the investment is suitable for you. Form 3.2 provides you with important information about the proposed investment. You must sign all three forms. Before you sign, ask questions and make sure you understand everything. Ensure full disclosure. Mortgage brokerages must take reasonable steps to ensure that the mortgage investment they recommend is suitable based on your needs and circumstances. They must also advise you of the material risks of the investment, disclose potential conflicts of interest, and provide evidence of the borrower’s ability to meet the mortgage payments. For more complex SMIs as of July 1, 2018, your mortgage broker must complete investor/lender disclosure Form 3.2, as listed on FSCO’s website, and provide a copy to you. Inspect the project. Consider going to inspect the actual property. Ensure you have sufficient documentation to support the property valuation. Keep in mind, property values in commercial developments are subject to market forces, and can decrease. Ensure you understand the marketplace in which you are investing. Please note there may be additional risks to investing in a syndicated mortgage. You should take all possible precautions before committing to invest. What are the main differences between Banks and Mortgage Finance companies? - Both offer prime lending, however MFC’s may offer alternative lending. Banks are federally regulated, where MFC’s are not. Banks have both money-in and money out activities, MFC’s usually only have money-out. Which statement is true about fixed rate mortgages & variable rate mortgages? - Fixed rate mortgages are usually dependent on the amount that banks make on the bond market, whereas variable rate mortgages are based upon the prime lending rate, which is dependent on the overnight lending rate. How would you determine what type of lender you would send your burrower to? - Review 4 c’s of credit Character, capacity, capital, credit, if all 4 strong, then a prime lender. What statements are true about reverse mortgages? - Reverse mortgage do not require mortgage payments and are repaid once the property sold. Reverse mortgage has a higher interest rate than standard mortgage. What is the difference between a syndicate mortgage and a bank mortgage? - A syndicate mortgage has more than 1 lender or investor as the mortgagee, whereas a bank mortgage only has the bank, 1 lender, as the mortgagee. What is the difference between a small rental mortgage and commercial mortgage? - Small rental is a property that is fully rented out, but is 1 to 4 units. When the property is 5 units or more, it is considered a commercial. What is the difference between a standard mortgage charge and a collateral charge? - A standard mortgage charge sets an initial principal mortgage amount that is then paid down to $0. A collateral charge sets a maximum principal mortgage amount that can be burrowed against throughout the term of the mortgage. Chapter 3 Module 1: The Essentials of the Real Estate Market. Definition of Real Estate: Real estate is defined as the land and all improvements made onto it, which includes houses, buildings, structures, trees, plants, water, mineral deposits, etc. Land itself is not real estate: You cannot obtain a mortgage on land only. Improvements must have been made to the land to allow for people to use it, whether it is for residential, commercial, industrial, or agricultural purposes. Ownership of real estate leads to building assets and net worth depending on types of market, real estate: a wide variety of monetary gain. A place to call home, or a place to leverage for financial gain. The 6 characteristics of the Real Estate Market. 1. Real Estate is not standard; you cannot have two that are identical. Right away they are on two different pieces of lands located in two different places. Built with same structure, still different; fences, decks, flooring, countertops, even number of bedrooms and bathrooms, and many other features. Each property is different. It is also the responsibility of a certified real estate appraiser or a real estate agent to determine market value, never the mortgage Agent. 2. Real Estate is local; although each piece of real estate is different from the next, a real estate market is very locally driven. Within a specific city you can have multiple markets that have varying market value ranges; the assumption cannot be made. It is important to dig into the economic within each city’s neighbourhoods; - Where are the start up neighborhoods with young family? Where are prestigious houses that have the highest house values? What types of employment are driving the market conditions? 3. Real estate is fixed; the value of real estate is determined by the land and the improvements made upon it, the location is fixed and cannot be moved to best suit a prospective buyer. The property is fixed to that location, and is part of the local housing market; exceptions: mobile homes. Mortgage agents cannot secure mortgages on mobile homes that are not permanently affixed to land; mortgage need both the land and the house. 4. Real estate is unorganized; real estate is not standard, and we cannot move real estate around so that similar type properties are clustered together. Only attempt at sorting the vast array of properties by common characteristics. 5. Real estate has slow supply and demand patterns; unlike consumer products. - Takes time to build real estate, starting from the drawings, to soil samples, to engineer reports, to building permits. - Once construction has begun, there are various trades involved to finish each piece, the drywall cannot be completed until the plumbing and electrical is completed, and so forth. - Conversely, demand cannot be created as quickly as buildings are completed. - No demand, unless there are enough people willing to move. - Demand can be stimulated by building schools and shopping, expanding public transport, and creating jobs nearby. 6. Real estate are private transactions. - Transaction between the seller and the buyer, private matter between two individuals. - The value attributed to the home may be based upon an individual’s perception, not necessarily what the open market would dictate. - A lender may ask for an assessment from a certified appraiser to obtain an independent opinion on the market value of the property. Factors that contribute to the level of activity and market values; 1. Composition of demand; More buyers than sellers, then seller’s market; bidding wars or multiple offers. More sellers than buyers, then buyer’s market; decreasing property values; might be helpful for renters. Seller not willing to drop their asking price, not living in the property, choose to list it to rent. Renters fill in the gaps. More units available, vacancy high, rental rates lower, vice versa. 2. Social influences; employment is a key element, house formation e.g large families, many pets, urban lifestyle. 3. Economy; more deposits, more to lend, the more business, more people can afford to purchase a house. Economy bad, traditional banks don’t lend, private lenders and MIC fill in the gaps. 4. Government influences; monetary policy, regulatory requirements. Module 2: Definitions Related to Real Estate; 1. Seller’s agent; real estate agent working for who is looking to sell their home is a seller’s agent. Commission range from 2%-5% of the sale price typically paid by the seller(homeowner). Agent brings their knowledge of the local housing market to be able to market houses at the highest asking price, advice on cost effective renos, appeal to prospective buyers, marketing. Sellers market, people may choose to sell privately. 2. Buyer’s agent; commissions range 1% to 2.5%, typically taken from the seller’s agent’s commission. 3. Offer of purchase; agreement of purchase and sale. Legal agreement, legally binding once accepted by the seller, can be made conditional on factors such as financing or a home inspection. If conditions are not met, the offer can be changed or cancelled. 4. Sales to listings ratio; a measure to gauge the type of housing market is the sales to new listings ratio, which takes the number of properties that are sold and divides it by the number of new listings that are entering the market. Properties being sold/ new listings. - 40-50% range, balanced. - Above this range, seller’s market - Below this range, buyer’s market. Sales to active listing ratio. - 12-20% balance. - Above this range, seller’s market. - Below this range, buyer’s market. 5. Resale market; the resale market describes the housing market made up of existing properties that are being sold or purchased. The sales to new listings ratio typically covers only the resale market. 6. New home market; made up of brand new properties that are being built, completed, and absorbed into the market. - Starts; concreted poured - Under construction; start on a dwelling. - Completion; proposed cont work on a dwelling unit has been completed. 10% work left, still count. - Absorbed; sold and completed, secured by non-refundable deposit and signed. Module 3: Who’s who in the mortgage brokerage Industry. FSRA is the regulatory agency responsible for a number of financial services sectors in Ontario, selffunded Crown Corporation, acts independently from the province, still accountable to the Ontario Legislature through the Minister of Finance. FSRA regulates Property & casualty insurance Life & health insurance Credit union & caisses populaires Loan & trust companies. Mortgage brokers Health services providers (related to auto insurance) Pension plan administrators Financial planners and advisors CMBA national is an inter-jurisdictional umbrella association consisting of provincial mortgage broker associations in Canada. Bottom up organizations, strengthen the efficiencies, provide regional services. Federal advocacy initiatives amongst provincial associations. Forum to work cooperatively, better share resources, branding initiatives, programs and information and coordinate engagement of provincial association members to identify trends and develop solutions to common industry and regulatory issues. Operates independently; networking opportunities, educational programs and liaises with the Ontario government on issues pertinent to provincial industry issues. Three levels of real estate associations; federal, provincial, municipal, generally real estate board operates at the local level. Canadian Real Estate Association (CREA) is one of Canada’s Largest single industry trade associations and represent the industry nationally and internationally. - Legislation Tools Professionalism Analysis of current economic issues. Ontario Real Estate Association (OREA) Appraisal Institute of Canada (AIC national, Ontario provincial) Canadian Association of Home & property inspectors (CAHPI) Ontario Association of Home Inspectors(OAHI) Canadian Home Builder’s Association(CHBA) Ontario Home Builder’s Association (OHBA) Real Estate Lawyers; provide legal advice to borrowers, legal rights and obligations. - Help borrowers understand condominium requirements; fee around $100 to $200 Offer title insurance; title insurance is an insurance policy that protects borrowers and the lender in the case of a mortgaged property, against any losses in relation to the ownership or title of the property. This includes the actual location and boundaries of the property. Land survey; shape, size, location of improvements made to the property, in particular where fences are located, takes more time to have a survey completed as compared to purchasing title insurance, therefore, most borrowers choose title insurance upon the purchase of a property and when they want to complete renovations, they would order a land survey. Which organization protects the interest of prospective buyers in Ontario? OREA Which organization regulates a number of financial services sectors in Ontario? FSRA. Chapter 4 – regulation of the mortgage industry Module 1: the essentials of the real estate market. Financial Services Regulatory Authority (FSRA) Regulatory agency; oversight of the mortgage brokerage industry. Market conduct regulations; focuses on the relationship between consumers and licensed or registered business and individuals FSRA is a member of Mortgage broker regulators’ council of Canada. FSRA’s market conduct regulation activities includes - Compliance - Licensing requirements - Complaints - Consistent approach. Principal broker, authorized - Sole proprietorship - Partnership - Corporation Legally authorized to operate in cnada Registered mail Errors and omissions insurance min $500k. Coverage of 1 mil in respect of all occurrences during a 365 day period. Not suitable 1. 2. 3. 4. If cannot be financially responsible No integrity and honesty Contravene the act. False statement Module 2: mortgage agent standards of practice. Ontario regulation 187/08, mortgage brokers and agents; standards of practice. 1. 2. 3. 4. - - Duty regarding the authorizing brokerage; don’t contravene or fail to be compliant. Dishonesty, fraud, or illegal conduct. Restriction regarding remuneration; only work for one brokerage firm. Use of licensee name in public relations material; must only use their authorized name as registered with FSRA. Your authorized name as a licensee. Your title as mortgage broker or agent. Your brokerage’s name & license number The disclaimer “independently owned and operated” if the brokerage is under a franchise agreement. 5. Personal service corporations. Personal service corp can be created for bookkeeping purposes and taxation. 1. Brokerage pays the corp instead of the mortgage agent 2. No more than the amount received from the brokerage. Module 3: The role of the principal broker; Chief Compliance Officer. - Comply with the MBLAA and its regulations. - Principles-based. - Brokerage may not operate without one. Mandatory that each brokerage has a policies and procedures manual and that it is accessible by all brokers and agents of the brokerage: ask one once completed the course. Code of ethics. The manual is also intended to - Provide equitable environment Ensure that business is conducted according to rule and regulations. What must be required to obtain a brokerage license A sole proprietorship must be a resident of Canada Legally authorized to operate in Canada Mailing address in Ontario that is not post office box and is suitable to received registered mail. ***CORP does not need to be incorporated under Ontario Corp Act. What are the requirements for errors and omissions insurance required by FSCO for a mortgage broker or agent to be authorized to deal or trade in mortgages on its behalf? Coverage of a min of $500k for any one occurrence. Coverage of a min of $1 mil in respect of all occurrence during a 365 day period. What are the different types of public relations material? B card, print ad, online ad, email signature line used to email clients. What is the minimum information that must be present on all advertising by a mort agent? Authorized name of mortgage agent (as per FSRA), authorized brokerage name, and brokerage license number, and title as “mortgage agent” Chapter 5 – Disclosure requirements Module 1: what is an Agency Relationship? - Principal-Agency relationship, where the brokerage is the Principal. Work as an agent on behalf of the brokerage. Agency-client relationship. Best interest of the borrower, duty of care, duty of diligence. Work with lenders and investors. Institutional lenders/private lenders. Full disclosure. Best interest of both the borrower and lender/investor in all of their mortgage transactions. Fiduciary duty. Module 2: Introduction to borrower Disclosure requirements - - Provide adequate disclosure, through a standard borrower disclosure form; most important resources. For costs and fees, can use actual figures or estimated figures, unknown such as legal fees. Disclosure can be shareable in an electronic format. Must give initial disclosure statement when proposed, at least two business days before 1. The day on which the borrower makes any payment, other than a disbursement charge. 2. The day on which the borrower enters into the mortgage agreement; and 3. The day on which the borrower incurs any obligation in relation to the mortgage. The borrower is able to waive the two business day period, upon their own discretion, but only prior to the three dates described above. Part of the disclosure on the brokerage includes “who the brokerage is acting as a rep of, where the mortgage agent is acting as an agent of” The brokerage is acting either, both a rep of both, either the borrower and the lender in a transaction and is not giving preference to interests of either. Provide details on the lenders/number of lenders. The brokerage has its own discretion to charge broker fees if wanted. Referral fees, Finder fees All needs to be disclosed. If the mortgage is $400k or less, you cannot ask for advance payment by the borrower. Sometimes the brokerage charge more fees if they need to spend more time. Module 3: disclosure for the Cost of Borrowing Annual Percentage Rate. - Interest-free periods, or are blended interest rates between multiple sub-mortgage components. Costs that a borrower has to pay to be able to obtain the mortgage. Mtg interest rate/ all the costs associated with the mortgage itself. Total interest rate + total fees. APR maybe rounded off to the nearest eighth of a percent. Each instalment payment made on the mortgage must be applied first to the accumulated cost of borrowing, which is usually the interest accrued, and then to the outstanding principal. Charges and fees required in the APR. Admin fee. Services, disbursements, lawyer or notary hired by the lender and payable by the borrower. Insurance charge and mortgage default ins. Brokerage charges paid by the lender Charges for appraisal, inspection or surveying services, if those services are required by the lender. Charges that are excluded Insurance, overdraft, register documents from a public registry about security interest. Penalty charges Services, disbursements, of lawyer or notary, other than those hired by the lender and payable by the borrower. Borrower is bene, paid by borrower, then no. Charges for mtg default loan ins, tax account, discharge fee, default charges. Fixed interest rate mortgage for a fixed amount If the broker is also lender, the client missed payments, have to let them know about the charges 30 no more than 30 days after the missed scheduled payment or the imposition of the default charge. Variable interest rate mortgage for a fixed amount. For fixed rate mortgages; The ad must also include the APR and the term of the mortgage and the APR must be provided at least as prominently as the rep and in the same manner as the rep is made, visually or aurally, or both. Disclosure must be based on an example of a mortgage that fairly depicts all those mortgages and is identified as a rep example of them Line of credit mortgage; Annual interest rate, or the amount, or of any charge other than interest. The ad must also include annual rate of interest on the date of the advertisement and any initial or periodic charges other than interst. If interest-free period, the ad must indicate whether interest accrues during the period and is payable after the period. If interest does not accrue, the ad must disclose any conditions that apply to the forgiving of the accrued interest and the APR. Module 4: Other required disclosures to borrower Conflicts of interest. Full disclosure of all of the parties involved, as there may be a risk of collusion. Material risks Risk associated with income sources - A loss in a job - Variable income - Divorced - Back to school - Disable, injured. Risk associated with expenses. - A growing family - Care of a family member - Child support, spousal support - Running into legal issues. - Rising interest rate on variable rates or upon renewal. Module 5: Disclosure to Lenders and Investors. A brokerage is required to give each lender and/or investor specific information and documents The investor/disclosure statements from FSRA With complete transparency, all important information, and enhanced consumer protection. Chapter 6 – Mortgage and land law Module 1: Contract Law and essential elements of a contract A contract is a legally binding and enforceable agreement made between two or more parties, wherein each of the parties promises to provide or do something in exchange for something in return from the other parties to the contract. A contract can be written or verbal, however, what it applies to land it must be written. For a contract to be valid and therefore legally binding it must contain seven essential elements 1. Offer; 2. Acceptance 3. Consideration; something in exchange, could be money, or something else. 4. Legal intent; the parties intended to create a contract and to be bound to its terms. Verbal contracts made between family members or close friends are not binding; the reason is that family members typically do not bargain or negotiate but agree out of a sense of duty to cooperate. It must be written to binding. 5. Capacity; not being incapacitated, sound of mind, not the age of majority, language barrier, void. 6. Consent; must not be under any external influence, which could impair their judgement. e.g) duress, undue influence, misrepresentation of the facts, a mistake of the understanding. - innocent misrepresentation - fraudulent misrepresentation 7. Legal purpose; must be legal. Invalid contracts 1. Void; duress 2. Voidable; one side has the option to cancel the contract. 3. Unenforceable; verbal contract, not enforceable, must be written. Any consideration exchanged must be returned to the original contracting party. 4. Illegal Breach of Contract; if any party does not fulfill its promise or obligation as part of the contract, they will be in violation of the contract which will result in their breach of contract. 1. Breach of a warranty in a contract; cut the grass 2. Breach of a condition in a contract; fails to fund on the day of closing, the purchaser is unable to purchase the property. Remedies; the purpose of the court is to put the suffering party into the position they would have been had the contract not been breached. In order to complete such, the courts utilize four main remedies. 1. Ordering specific performance; the most equitable remedy, used when the awarding of damages is not adequate to compensate the suffering party. 2. Awarding damages; the most common remedy. - Damages for any depreciation in the purchase price received on a subsequent offer, - Carrying costs, - Extra moving or storage costs. - Any increased commissions and legal costs. 3. Ordering an Injunction; the most intrusive remedy - Prohibitive injunction; to stop a party from doing something - Mandatory injunction; to require a party to do something. 4. Quantum Meruit; pay what they have done. Module 2: the agreement of purchase and sale (APS) Residential property. Initial every single page. It can be manually created as long as met the seven criteria but not recommended. Title search a mortgage or other charge on property or assets. "details of encumbrances on property" Insurable from damage and theft, verify that there are no issues with the use of the property, no outstanding notices or work orders. Closing Arrangements Documents and discharge Inspection Insurance. Planning Act & Documentation Residency; Module 3: Land ownership and securing against land Land Ownership; all the lands in Canada belong to the Crown. As the absolute owner, the Crown, is entitled to certain rights. Fee simple Leasehold interest. Capacity of Ownership between the parties on Title. - 1. Sole ownership 2. Joint tenancy; aka joint ownership; 100% ownership, the other person passed away, the estate of the deceased owner would receive nothing. Aka right of survivorship; most common amongst married couples and family members; must meet four conditions, also called unities; Unity of time; the joint tenants must be registered on title at the same time Unity of title; the unity must arise from the same document, ie: will or transfer Unity of interest; the joint tenants must have the same interest, including equal duration and extent Unity of possession; each joint tenant must have an equal interest to reside in the entire property. Converted into a tenancy in common if breached. 3. Tenancy in common, aka co-ownership; the total ownership has to be 100%, no right of survivorship, upon death, it goes to the estate; common amongst business partners With both joint tenancy and tenancy in common all parties registered on title would have to agree to mortgaging, refinancing or selling the property. In instances where there is no agreement bwetween the parties, one owner can commence an application in the Superior Court of Justice to sell the property. Searching title in Ontario: an electronic database known as the Ontario Land Registration System (LRS) Information about all the land in the district of each LRO. Official records of how title is held, transfers, chargers, security interests, encumbrances, and other registrations and interests that affect such land. Limited details of a property by using “Purview”, specify the city, research. A broker report; property addy, legal description, the names of the party or parties on title, the perimeter and area, information as to the last two transfers and the name and registration amount of any mortgages registered on title. Purview provides the estimated value of the property, equity in the property, a profile of the neighborhood, recent neighborhood sales, market trends. does not provide as to how title is held. i.e joint tenants or tenants in common, no other interests., whether the property is involved in any legal proceedings. ASK: the potential for any registered security interests, such as registered liens, construction or condo lien, outstanding writs(written order) or judgements. Sub-search, no surprises/ work with the lawyer. The two main documents in the LRS are known as the Transfer and Charge; it’s the responsibility of the lawyer to review. Module 4: land related taxes and other land title related terms Land transfer fees are paid by the purchaser/transferee on all purchases/transfers of land. - In Toronto, municipal transfer tax, thus two transfer fees. - Tax based on the value of the consideration; purchase price, any liabilities, benefits received, soft costs and upgrades to the property. Marginal tax rates with the tax percentage increasing as the consideration increases. - Rebates exist; i.e first time home buyer. Non-resident speculation tax(NRST); 15% in greater golden horseshoe region. Registration of Security in Ontario – Encumbrances. - The CHARGE; interest. - The priority of registration of encumbrances is on a first come and first serve basis Blanket Mortgage - Request additional security if not enough equity in a property in the form of a charge on another property. - A developer purchases a land, mortgages it and then subdivides the property -> blanket mortgage. - Benefits; one mortgage payment, minimize admin, bookkeeping and legal costs, provide more financial clout, such mortgages are more customizable, because they are not solely based on TDS, GDS, credit score and LTV. - Also beneficial for multi-property investors. - Harder to obtain, payments are larger, not all properties can be blanketed. Transfer of Mortgage. 1. Priority of registration is protected and any subsequent registered encumbrances will remain in subsequent priority. 2. The transfer of charge does not require the mortgagor to sign anything as the transfer is between the current mortgage holder and a new mortgagee. 3. The costs to transfer a charge are less than the costs to discharge and register a new charge, which would also require the involvement and signature of the mortgagor. Mortgage Assumption. - The divorcee remaining on title would need to apply, qualify and receive approval by the mortgagee. - The lender would then issue a Release of Covenant to the existing divorcee, confirming that they are no longer responsible or liable for the mortgage. - The benefit is that divorcee can maintain terms of the mortgage. - No legal costs incurred. Mortgage Discharge - Charge gets removed once the obligations have been fulfilled; repayment of the mortgage in full, mortgagee or a lawyer registers a discharge of charge/ signed by rep. Module 5: Mortgage default
