Mortgage Brokerage - Agent for Borrower

Purpose: To explain the requirements for a mortgage brokerage acting as an agent for a borrower.

This bulletin applies to all mortgage brokerages, brokers and associates.

Mortgage brokerages may choose a business model in which they represent borrowers. This service relationship must be in writing.

A mortgage brokerage and its industry professionals must disclose, in writing, to borrowers:

Written service agreements are a best practice for making these disclosures.

When a borrower is the brokerage’s client, the brokerage has an obligation to represent the borrower’s best interests at all times. If that’s the case, and all parties agree, they will treat lenders as customers. The brokerage will still have other responsibilities to potential lenders and/or customers.

A customer is a person who has contacted, but not engaged or employed, an industry member to provide services. When representing the borrower, the brokerage will:

Representing borrowers
Agency describes a consensual relationship that you may create by contract or by law where one party, the principal, grants authority for another party, the agent, to act on their behalf. The agent is under the principal’s control to deal with a third party and the agent accepts responsibility for representing the principal.

You may create an agency relationship through express agreement (verbally or in writing) or implied (by actions).

An agency relationship is fiduciary in nature, and the actions and words of an agent with a third party bind the principal. Agency law sets out rules and principles for these relationships.

When representing the borrower, the brokerage will represent the borrower’s best interests and:

Fiduciary obligations
When a brokerage is acting as the agent of a borrower (representing the borrower) it has a duty to protect that borrower client’s interests. In this relationship, the mortgage brokerage has the highest level of legal responsibility to the borrower. These responsibilities include:

The borrower relies on their mortgage brokerage’s expertise in conducting due diligence on mortgage options that suits their needs. When a borrower is considering mortgage options, they will often act on their brokerage’s recommendation.

An agent cannot be loyal to two parties in the same transaction. Mortgage brokers can’t represent the lender and the borrower in the same transaction because they wouldn’t be able to fulfil their fiduciary obligations to both parties. The requirement to disclose relevant information and keep a principal’s information confidential is a conflict. Typically, an agent assumes the role of an advocate on behalf of their principal. If an agent attempts to represent two parties in the same transaction, it is a conflict of interest. 

Regulatory obligations
Additional regulatory obligations include:

Compensation disclosure
Mortgage brokerages must disclose to borrowers how the brokerage will receive compensation for the transaction or any other monies or benefits it may receive and any factors that may influence payment of those monies or benefits.

The disclosure requirements for compensation are:

The brokerage or its representatives may also receive money or non-monetary benefits from the lender that include:

RECA has developed a written service agreement – Service Agreement – Acting for a Borrower to assist brokerages in meeting all of their requirements when acting for a borrower.

When a mortgage broker completes this document and uses it with their borrower client, it will provide all of the necessary disclosures and consents, including:

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