What Higher Lending Rates may mean for Mortgage Brokers

by Gary Siegle, RECA Regulatory Compliance Advisor, Mortgage Brokers

To combat rising inflation, the Bank of Canada raised interest rates several times in 2022. Tighter monetary policies, such as interest rate increases, are meant to slow the demand for goods and services and ultimately lower the pace of national inflation. The economic environment in Canada has begun showing the affects of these rate increases, but not enough yet for interest rates to be lowered again. In fact, widespread belief is that more rate hikes will come soon and may continue into 2023.

Interest-sensitive areas of the economy, including the housing market, are typically among the first to feel the effects of a change in interest rates. Higher rates mean fewer people will qualify for mortgages. Some buyers may decide to hold off on intended property purchases, in hopes that rates come down and housing supply and demand will rebalance. However, economists are warning that Canada is at risk of falling into a recession in 2023.

Fluctuating rate hikes and a downturn in the economy can have a significant impact on the livelihoods of those in the mortgage industry, since income is often paid on commission. As a mortgage broker, it’s a good idea to prepare your business for the possibility of a prolonged slowdown in the housing market and economy. If it hasn’t already, there is a likelihood that your mortgage business could slow, and your income could become uncertain.

Options Available to Help Prepare for a Market Downturn

If RECA licensees are dealing with debt or financial hardship, there are local services that may be able to help:

• the Credit Counselling Society is a free, non-profit service that offers debt repayment and settlement solutions as well as no-cost financial planning education programs
• Money Mentors is a non-profit organization authorized by the provincial government to provide the Orderly Payment of Debts (OPD) debt consolidation program to qualified Albertans if their debt has become difficult to manage
• RECA’s Financial Hardships Information Bulletin provides some further information to help our licensees address financial hardship

It is important to note that many credit counselling and debt restructuring services are non-regulated, so it is always a good idea to check references before engaging with a private company.

When you’re Obligated to Contact RECA’s Registrar

Some financial situations need to be reported to RECA’s Registrar under section 40 of the Real Estate Act Rules. As a licensee you are obligated to notify the Registrar if you are the subject of a personal and/or business bankruptcy proceedings. You must also notify the Registrar whenever a company you own or are a partner, director, or officer of, is the subject of bankruptcy proceedings.

What’s Considered a Bankruptcy?

The following options fall within RECA’s definition of “bankruptcy proceeding” and require an immediate notification to the Registrar:

• a licensee is personally in the process of a consumer proposal
• a business a licensee owns, or is a partner, director, or officer of, is in the process of a Division 1 proposal
• a licensee has declared bankruptcy

How to Notify RECA

The process to notify the Registrar of a bankruptcy proceeding should be done through your myRECA account, under the My Account tab. You will need to provide some details about the situation.

RECA’s team then reviews the information to determine if the situation creates any potential harm to the public or impairs the licensee’s ability to provide competent service. RECA would consider the context of an economic downtown (or other factors outside one’s control) when reviewing a submission. Outside intentional factors, such as avoiding financial responsibility, there would typically be no impact to the the licensee.

Other Actions you can Take

Although interest rates and economic downturns are situations that are out of your control, proactively taking care of your business and personal finances and getting debt in order are habits you can adopt to prepare to weather the storm.

RECA’s Financial Hardship Information Bulletin further outlines the situations that constitute bankruptcy proceedings. Failure to notify the Registrar immediately could result in fines and other disciplinary action, so it is always better to receive clarification if there are doubts if the requirement applies to your situation. Licensees who have any questions or aren’t sure if they need to report an event, can contact RECA’s Information Services team to discuss specific circumstance at info@reca.ca. Brokers or delegates can contact me at gsiegle@reca.ca. 

For outside advice on financial hardship, please contact the resources listed above or reach out to an accountant or financial advisor.