Mortgage brokers in British Columbia have undergone significant changes over the past 50 years and now play an important role in the province's economy. Originally seen as a last resort for difficult clients, brokers now originate 25% of new mortgages and have funded $84 billion in residential mortgages. Regulations in the 1970s established licensing for brokers and later the Mortgage Brokers Association of BC promoted ethics and professional standards. Today, brokers act as trusted advisors and help clients navigate complex regulations to find the best mortgage options.

1. COVER STORY: MORTGAGES
The Evolution
of Mortgage
Brokering
in BC
www.wildmanphotography.com
Samantha Gale, CEO
of the Mortgage
Brokers Association
of BC, in conversation
with Val Wilson
The Scrivener: Mortgage brokers
in British Columbia make a remarkable
contribution to the provincial economy.
Samantha: They do. Canadians shared
a total outstanding mortgage balance
of over $1.1 trillion in 2012, up
significantly from the number in 2008,
which sat at $858 billion.1 If BC
represents about one third of mortgage
transactions across the country and
mortgage brokers are responsible
for originating 25 percent2 of new
residential mortgages, then we can
see that BC mortgage brokers funded
a staggering $84 billion of the total
residential mortgage credit in BC.
The Scrivener: Today, mortgage brokers
are respected as go-to advisors in the
field. That was not always the case.
Samantha: It is true that mortgage
brokers did not always enjoy such
commonplace acceptance as
financial intermediaries in the lives
of Canadians. Back in the 1970s,
1
Statistics Canada, Residential Mortgage
Credit, last modified: 2013-08-30.
2
Maritz, Consumer Mindset, CAAMP 2013
Consumer Survey
Volume 22 Number 3 Fall 2013
the stereotype of the mortgage
broker might be more aligned with
that of a salesperson. The mortgage
marketplace underwent a rapid
transformation in that time period,
starting with amendments to the
Canada Bank Act in 1967.
…BC mortgage brokers
funded a staggering
$84 billion of the
total residential mortgage
credit in BC.
The Scrivener: What effect did the
amendments have?
Samantha: A 6 percent cap on
interest rates that could be charged
on residential mortgages by banks
was eliminated in those amendments.
Nonbank mortgage lenders were the
primary mortgage lenders for the
majority of Canadian households
in the 1960s as the interests rate
rose above 6 percent, pushing
banks almost completely out of the
mortgage market. The 1967 Bank
Act amendments, however, eliminated
the interest rate cap, which permitted
banks to make conventional mortgage
loans that were not insured.
The Scrivener: How has the mortgage
business fundamentally changed over
the years?
The Scrivener
Samantha: One of the most important
mortgage innovations of the last
century was the implementation
of mortgage-default insurance
by the federal government. In
an effort to stimulate the postWorld War II demand for housing, the
government enticed lenders to increase
their participation in the mortgage
market by reducing the risk of financial
loss resulting from mortgage defaults.
The program clearly drew a greater
array of mortgage lenders into the
mortgage market and expanded
available mortgage credit to Canadians.
In addition, rapid inflation toward
the end of the 1960s changed the
nature of mortgage-lending practices.
Inflation during that period is tied
to increased consumer demand
for goods, resulting in intensified
competition for the supply of resources
and available flow of capital.
The Scrivener: What effect did that
have on interest rates?
Samantha: The squeeze on the money
supply resulted in a correlating rise
in interest rates. Long-term lenders
who had previously enjoyed a steady
period of relatively fluctuation-free
interest rates found themselves
facing a serious risk that loans
were committed at interest rates
significantly below the cost to source
the funds. Consequently, mortgage
agreements began to change.
TABLE OF CONTENTS
17

2. The Scrivener: What were those
changes?
Samantha: Mortgages became partially
amortized using terms, so that interest
rates could ride the upward wave
with repeated mortgage renewals.
Partial amortization was a new
concept that permitted borrowers
to share with lenders the risks inherent
in an inflationary economy.
Those changes were only the
beginning of an exponentially rapid
evolution of the mortgage industry.
The development of modern land
and mortgage law, emanating from
Anglo-Saxon England, spans a good
thousand years. Current concepts
of risk protection, payment plans, and
mortgage options really only developed
in the last 40 or 50 years.
It is among this backdrop
of change that the mortgage broker
first appears in the lexicon of financial
services discourse. There were now an
array of options with different lenders,
programs, and mortgage terms—the
broker’s new niche role was to steer
a client into the right option.
The Scrivener: What was the primary
function of the mortgage broker at that
time?
Samantha: By and large, the public
was still dealing directly with banks
and conventional lenders to facilitate
mortgage loans. The mortgage broker’s
primary role was to assist clients who
had serious qualification challenges
to find alternative lenders—clients
that had been given a clear rebuff
by their bank. The mortgage broker was
characterized as an option of last resort
for “bottom of the barrel” clients.
The Scrivener: When was regulatory
oversight introduced?
Samantha: Regulatory oversight
of mortgage brokers was implemented
with the enactment of the Mortgage
Brokers Act in 1972, at the time
a most forward-thinking and
innovative piece of legislation.
British Columbia was one of the first
provinces to license mortgage brokers
and to set exceedingly high standards
for brokers with a comprehensive
licensing course borrowed from the
more mature real estate industry.
18
TABLE OF CONTENTS
In addition, the rise of associations
has played a part in the development
of the mortgage broker industry.
Chartered in 1990, the Mortgage
Brokers Association of BC is the
oldest broker association in Canada.
It developed a mortgage broker
Code of Ethics and professional
practice courses. Along with those
developments, the role of mortgage
brokers began to change significantly
over time as lenders found it more
economical and cost-effective
to originate mortgages through the
broker channel.
Chartered in 1990,
the Mortgage Brokers
Association of BC is the
oldest broker association
in Canada.
The Scrivener: What is the role of the
mortgage broker today?
Samantha: Mortgage brokers have
truly transformed their role as the
financing option of last resort to the
option of first resort. Approximately
30 percent of mortgage borrowers
utilize the broker’s negotiating power
to find competitive mortgage terms
and options. A recent economics
study3 found that mortgage brokers
with their competitive advantage in
obtaining lower rates saved consumers
$15.89 million in 2009. While this
may not be a whopping number,
it does have a tangible impact on
the efficiency of the economy and
provides clear cost-saving benefits
to consumers.
The role of the mortgage broker
is in the process of transformation
yet again, this time from rate
negotiator to trusted advisor.
Mortgage brokers represent borrowers
and act as their agent not only
to source the best mortgage but
to advise on alternative choices
with a long-term view of the client’s
financial well-being and needs.
3
A
ndrew T Williams, An Examination of the
Canadian Mortgage Broker Industry,
Acadia University, 2010
The Society of Notaries Public of British Columbia
The Scrivener: What are other
advantages to using the services
of a mortgage broker?
Samantha: Mortgage brokers have
relationships with some lenders that
the public would not ordinarily be
able to access. They understand the
lending strategy and requirements
of various lenders and can assess the
right fit for each client.
The new B-20 OSFI guideline
has tightened up prudential
B-20 Guideline:
OSFI Residential
Mortgage
Underwriting
Practices and
Procedures
The Guideline outlines five main
principles for prudent mortgage
underwriting and/or acquisition.
Federally regulated financial
institutions (FRFIs) engaged in
residential mortgage underwriting
and/or the acquisition of residential
mortgage loan assets in
Canada should
•
have a comprehensive
residential mortgage
underwriting policy;
•
perform reasonable due
diligence to assess the
borrower’s identity,
background and demonstrated
willingness to service his
or her debt obligations on
a timely basis;
•
adequately assess the
borrower’s capacity to service
his or her debt obligations on
a timely basis;
•
have sound collateral
management and appraisal
processes; and
•
have effective credit and
counterparty risk management
including, where appropriate,
mortgage insurance.
Volume 22 Number 3 Fall 2013

3. The Mortgage Industry in BC
Lenders
Regulator
Private
Unregistered
Not Regulated
Mortgage Brokers
Registrar of Mortgage
Brokers (FICOM)
Market Conduct
Private
MICS
Monolines
Syndicators
BC Credit Unions
BC Insurance Company
MBABC
BC Ministry
of Finance
Superintendent
of Financial Institutions
(FICOM) Prudential
BC Trust Company
Borrowers
Government
Oversight
Federal Insurance Companies
Credit Unions
Trust Companies
Banks
External
Complaint
Body
Office of the
Superintendent
of Financial Institutions
OSF
Prudential
Federal Ministry
of Finance
Financial Consumer
Agency – FCAC
Market Conduct
High Ratio Insurers
Canada Mortgage Housing
underwriting criteria for federally
regulated lenders (FRFI) such as banks
and have made it more challenging
for borrowers to obtain mortgage
financing. The guideline governs loans
secured against residential properties,
home equity lines of credit (HELOCs),
and home equity loans.
Mortgage underwriting has
undoubtedly become more complex as
a result of B-20. Loan approvals now
require more extensive documentation;
banks have adopted their own unique
policies that set out more strict
approval criteria. While B-20 may
create extra hurdles for mortgage
borrowers, there is now a correlating
need for borrowers to obtain advice—
advice from the mortgage broker.
Today it is not as easy for
borrowers to obtain a quick mortgage
approval from their bank because
they may not satisfy the bank’s B-20
qualification criteria. Borrowers may
not know which alternative bank or
mortgage lenders to go to if rejected
Volume 22 Number 3 Fall 2013
by their own financial institution.
A mortgage broker may therefore be
more essential than ever for borrowers
in today’s B-20 underwriting climate.
The Scrivener: Please tell us more
about the work of the Mortgage Brokers
Association of British Columbia.
Samantha: One of the goals of the
MBABC is to support the mortgage
broker in fulfilling his or her role as
mortgage advisor by strengthening
ethical and practice standards
through the delivery of professional
development education and practical
courses. To that end, the MBABC has
created the Mortgage Brokers Institute
of BC, which delivers re-licensing
education and postlicensing courses
for managers, broker owners, and
brokers.
The 1972 Mortgage Brokers Act
is also undergoing an overhaul by the
Ministry of Finance, which will provide
an opportunity to modernize the
licensing regime. The MBABC acts
as an advocate of the industry and
The Scrivener
the public by championing modern
reforms, such as a greater role for
the industry in its own regulation,
the creation of personal mortgage
broker corporations, and creating
clearer guidelines for the charging
of broker fees.
The Scrivener: What do you see
for the future?
Samantha: The mortgage broker
industry in BC has truly undergone
a transformation, to prudent mortgage
shopper and mortgage advisor and
planner.
Enhanced practice standards
and a modernized licensing regime
will undoubtedly further redefine the
mortgage broker’s advisory role for
property owners seeking mortgage
planning and advice.
With mortgage brokers in BC
having funded $84 billion of current
mortgage financing, they make a vitally
important contribution to the BC
economy. s
TABLE OF CONTENTS
19