It’s important to understand the difference between having a mortgage administrator’s licence and having a mortgage Administrator.
O. Reg. 411.07(opens in a new tab) states a mortgage administrator’s licence may be issued by FSRA to a corporation, a partnership or a sole proprietorship.
A mortgage administrator’s licence is issued either in the legal name of the corporation, partnership or sole proprietorship or in the legal name and one other name that is registered to the corporation, partnership or sole proprietorship under the Business Names Act. Take time to review the entire regulation and its requirements for licensing before continuing.
A mortgage Administrator is responsible for administering the loan from the moment funding of the mortgage loan takes place until the mortgage is paid off, while complying with regulatory requirements and ensuring customer satisfaction.
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The tasks a mortgage Administrator is responsible for include (but are not limited to):
Following up on late payments
Producing mortgage statements
Communicating with lenders and borrowers
Updating mortgage documents
Updating property insurance
Preparing mortgage discharges
Under the Mortgage Brokerages, Lenders and Administrators Act, 2006, SO 2006, c29 (MBLAA), there are specific regulations that a mortgage Administrator must adhere to. In the next section, you’ll learn about the regulatory requirements for administering mortgages and the importance of appropriate corporate governance (including policies and procedures).
O. Reg. 189/08(opens in a new tab)
This regulation lists the regulatory requirements that must be followed by the mortgage Administrator. These include requirements regarding the following:
Public relations and public relations materials
Customer relations, including the verification of identity and prohibited activities
Information about fees and other payments
Duties in particular transactions, including the disclosure of the mortgage Administrator’s relationships and any real or perceived conflicts of interest
Handling the payments to the lender/Investor
Managing the business of mortgage administration, including the creation of a policies and procedures manual that outlines how the Administrator will carry out their duties
Managing deemed trust funds
Other matters, as deemed by FSRA
Key regulations include the following:
O. Reg. 189/08, s 18 – Duty re: administration agreement
A mortgage Administrator is required to create a mortgage administration agreement that the lender or investor signs to administer mortgages on their behalf. This agreement must clearly outline the terms of service and fees associated with the mortgage administration.
O. Reg. 189/08 s 25 – Duty to establish policies and procedures
The mortgage Administrator is responsible for establishing a policies and procedures manual to ensure that the mortgage Administrator or anyone acting on their behalf complies with the Act and Regulations.
O. Reg. 189/08, s 27 – Duty to have insurance
This regulation refers to having errors and omissions (E&O) insurance.
The mortgage Administrator must have E&O insurance to protect themself and their investors in the case of an error which results in legal proceedings. For example, suppose an investor sues the mortgage Administrator because they misread the appraisal. In that case, the E&O insurance is used to employ a lawyer and pay any damages in case the mortgage Administrator is found to be at fault. Keep in mind that there are limits to the E&O insurance coverage. If it’s found that the mortgage Administrator made a mistake that could have been avoided, the E&O insurance may not cover the damages. If the mortgage Administrator also has a mortgage Brokerage, a separate E&O insurance policy is required for each.
O. Reg. 189/08, s 28 – Duty to have a financial guarantee
A mortgage Administrator shall maintain a financial guarantee in an amount equal to $25,000. The financial guarantee may be unimpaired working capital or another form of financial guarantee acceptable to the Chief Executive Officer.
O. Reg. 189/08, s 33-39 – Managing deemed trust funds
A mortgage Administrator will set up a trust account separate from the general account, which will hold Investor funds or any monies “in trust.” This includes good faith deposits for pending transactions, Investor funds in trust and interest payments.
A mortgage Administrator shall prepare and submit to FSRA an audited financial statement for the authorized trust account within 90 days after the end of the year, along with the annual information return (AIR report). In addition to setting up the trust account, the mortgage Administrator is responsible for completing monthly reconciliations of the trust account and keeping accurate records of any inbound or outbound money. Administrators will also prepare monthly statements to the Investors outlining the status of every loan they have funded.
O. Reg. 189/08, s 26 – Establish a complaints process
A mortgage Administrator must establish a process to handle complaints about any administration activities and keep a record of all written complaints from the public and subsequent written responses to the complaints.
Importance of Governance
The policies and procedures established based on the regulations should be a guiding light for the business. All policies and procedures are considered a work in progress and should be continually updated as the business evolves. Ideally, a policies and procedures manual should include enough documentation so that a new mortgage Administrator can refer to it and understand how the business is run.
In addition to the regulations outlined in O. Reg. 189/08, the policies and procedures manual should include the following:
The end-to-end process of how a mortgage is administered
Detailed steps to take with the various exceptions to the standard end-to-end process
How to deal with defaults
Guidelines for using the applicable software used in the business
The process for handling storage and security of client and Investor information
When to pay investors; for example, if the mortgage Administrator collects payments on the first of the month and pays investors on the 15th of the month, this buffer allows time to deal with missed payments, organize statements and prepare Investor transfers