Reminder: Doing What Matters Most with Private Mortgages

With FSRA continuing to have an increased level of scrutiny on Private Mortgages, it’s a good time to review the fundamentals on what you need to do - to protect your clients and yourselves.

Back to the Fundamentals

As FSRA reviews more files, our communication with FSRA indicates that the first thing they are looking for is whether you’ve done the fundamentals properly:

-Disclosure
-Know Your Client
-Suitability
-Exit Strategy

If all of these are in order and documented properly, you tend to have a little more grace with other pieces of the file. Conversely, if these are problematic, it tends to compound the issues you might face.

Important to note though, it’s not just that you’ve put the bare minimum into these documents, but that you’ve given a consideration and level of care to them - why did you choose to go private, what other options did you consider and review? Why that particular lender (especially if there’s an actual or potential conflict of interest)? Is the exit strategy more than simply “sell the property”?

Remember: FSRA’s goal is for clients not to be in private mortgages long-term - they’re a tool, but shouldn’t be your primary focus.

Think More than the Borrower

With traditional “A” and “B” lenders, you don’t have to put much thought into the lender - you want to pick the one that’s best for your client, but you know that the lender you pick is going not going to be an issue. With private mortgages though, you need to be more diligent - does the file fit within the lender’s stated risk tolerance? Do they understand the transaction? Have you shown them the same duty of care as the borrower - and done the same due diligence (including FINTRAC)?

While it’s much easier to think about these things when you’re dealing with an individual private lender, FSRA specifically makes a point that you should be giving the same consideration to MICs and other Institutional type private lenders. See their guidance here.

Documentation is Key

Most issues with files begin with a complaint from someone in the process - either the borrower or the lender. If there’s a complaint by the client or if FSRA comes knocking at your door, the very first thing you’re going to be asked for is your notes and documentation on the file: that includes texts, emails, summaries of phone/in person conversations, and anything else you can conceivably gather. So, it means that you need to take good notes throughout the process and organize these details in such a way that they can be easily presented - this is good practice for any file that you might start, but is especially important with regards to private files. Even if a file doesn’t fund for whatever reason, you should be collecting and saving your documentation.

And, as a reminder - FSRA isn’t the only regulator that might come calling. You need to make sure you’ve completed your FINTRAC obligations on all files where it’s appropriate. The moment you have any form of ID Verification - including pulling a credit bureau - you have an obligation to Risk Rate/Justify, and do the necessary PEP/Sanctions screening. That should be loaded to your file in Filogix/Velocity as a matter of course.