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The Fundamentals of Mortgage Brokerage
Mortgage Associates Program
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta i
TABLE OF CONTENTS
INTRODUCTION: THE FUNDAMENTALS OF MORTGAGE BROKERAGE
Course Overview .................................................................................................................................... 1
Course Goals ....................................................................................................................................... 1
Course Features ................................................................................................................................... 1
Course Manual ............................................................................................................................ 1
Online Course .............................................................................................................................. 2
Course Orientation ...................................................................................................................... 2
Course Activities/Quizzes ........................................................................................................... 2
Course Tracking .......................................................................................................................... 2
RECA Education Helpdesk ......................................................................................................... 2
Exam Preparation Quiz ............................................................................................................... 2
Exam Tour ................................................................................................................................... 3
Glossary ....................................................................................................................................... 3
Course Structure .................................................................................................................................. 3
Units ........................................................................................................................................... 3
Sessions ....................................................................................................................................... 4
Activities ..................................................................................................................................... 4
Unit Quizzes ................................................................................................................................ 4
Education Services Support ............................................................................................................... 5
Benefits of E-Learning ................................................................................................................ 5
RECA Education Helpdesk ......................................................................................................... 5
Contact RECA Education Helpdesk by Email ............................................................................ 5
Contact RECA Education Helpdesk by Phone ............................................................................ 5
Learner Support Within the Course............................................................................................. 6
Course Questions and Answers ........................................................................................................... 8
Course System Requirements ............................................................................................................ 12
Course Examinations ........................................................................................................................... 13
Exam Preparation Tips ...................................................................................................................... 14
Exam Preparation Quiz...................................................................................................................... 15
Permission to Write Exam ................................................................................................................. 15
Permission to Write Form ................................................................................................................. 15
Permission to Rewrite Form .............................................................................................................. 16
Failing Exam Rewrite ........................................................................................................................ 16
Sample Permission to Write Form ............................................................................................ 17
Sample Permission to Rewrite Form ......................................................................................... 18
Scheduling Exam at an Exam Centre ................................................................................................ 19
Exam Guidelines for Learners........................................................................................................... 19
Book Your Exam Centre Appointment ..................................................................................... 19
Admission to the Exam Room................................................................................................... 19
During the Exam ....................................................................................................................... 20
Learners’ Non-Compliant Conduct ........................................................................................... 20
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta ii
Education Administration: Policies and Procedures ........................................................................ 21
Education Code of Conduct for Learners ......................................................................................... 21
RECA Education Core Values .......................................................................................................... 22
RECA Education Privacy Policy ....................................................................................................... 23
RECA Education Course/Exam Policies and Procedures ................................................................. 24
Course Delivery ......................................................................................................................... 25
Enrollment Extensions .............................................................................................................. 26
Exams ........................................................................................................................................ 27
UNIT 1: INTRODUCTION TO MORTGAGE BROKERAGE
Unit Overview ...................................................................................................................................... 1-1
Unit Learning Objectives ................................................................................................................. 1-1
Session 1: Understanding Mortgage Brokerage .............................................................................. 1-2
Session Overview ............................................................................................................................. 1-2
Learning Objectives ................................................................................................................. 1-2
Course Terminology ......................................................................................................................... 1-2
Basic Mortgage Concepts ................................................................................................................. 1-2
What is a Mortgage? ................................................................................................................ 1-3
What is Real Property? ............................................................................................................. 1-3
What is Dealing in Mortgages? ................................................................................................ 1-4
Connection Between Mortgages and Real Estate ............................................................................. 1-4
Residential Mortgages .............................................................................................................. 1-5
Commercial and/or Industrial Mortgages ................................................................................. 1-5
Agri-Business Mortgages ......................................................................................................... 1-5
Summary .................................................................................................................................. 1-5
Origin of the Term Mortgage ........................................................................................................... 1-6
Overview of the Mortgage Brokerage Industry ................................................................................ 1-6
Historical Developments Affecting Mortgages ................................................................................ 1-7
1930’s ....................................................................................................................................... 1-7
1940’s ....................................................................................................................................... 1-8
1950’s ....................................................................................................................................... 1-8
1960’s ....................................................................................................................................... 1-8
1970’s ....................................................................................................................................... 1-9
1980’s ....................................................................................................................................... 1-9
1990’s ....................................................................................................................................... 1-9
2000’s ..................................................................................................................................... 1-10
2010’s ..................................................................................................................................... 1-11
Financial Landscape of Mortgages ................................................................................................ 1-12
Capital Market ........................................................................................................................ 1-12
Mortgage Market .................................................................................................................... 1-13
Impact of Interest Rates on Mortgages ................................................................................... 1-14
Sources of Mortgage Financing ..................................................................................................... 1-15
Career as a Mortgage Associate ..................................................................................................... 1-15
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta iii
Benefits of Working with a Mortgage Brokerage Industry Member ............................................. 1-16
Alberta Consumers Receptive to Work with Mortgage Brokerage Industry Members ......... 1-17
Functions of a Mortgage Associate ................................................................................................ 1-17
Disclosure Requirements ........................................................................................................ 1-18
Gather Documentation and Information ................................................................................. 1-18
Prepare and Submit Loan File ................................................................................................ 1-18
Close Deal and Follow-up ...................................................................................................... 1-19
Key Knowledge Areas .................................................................................................................... 1-19
Session 2: Structure and Scope of Alberta’s Mortgage Brokerage Industry .............................. 1-20
Session Overview ........................................................................................................................... 1-20
Learning Objectives ............................................................................................................... 1-20
Evolution of Self-Regulation ......................................................................................................... 1-20
Real Estate Council of Alberta ....................................................................................................... 1-22
Mandate, Mission, Vision and Philosophy ............................................................................. 1-22
Composition of Council ......................................................................................................... 1-23
Responsibilities of Council .................................................................................................... 1-23
Council and the Executive Director ....................................................................................... 1-24
Responsibilities of the Executive Director ............................................................................. 1-24
Responsibilities of RECA ...................................................................................................... 1-25
Session 3: Mortgage Brokerage Industry Related Organizations and Professions .................... 1-29
Session Overview ........................................................................................................................... 1-29
Learning Objectives ............................................................................................................... 1-29
Mortgage Brokerage Trade Associations ....................................................................................... 1-29
Alberta Mortgage Brokers Association .................................................................................. 1-29
Canadian Association of Accredited Mortgage Professionals ............................................... 1-30
Mortgage Brokerage Related Organizations .................................................................................. 1-30
Provincial Government .......................................................................................................... 1-30
Alberta Real Estate Foundation .............................................................................................. 1-31
Law Society of Alberta .......................................................................................................... 1-31
Federal Government ............................................................................................................... 1-32
Mortgage Brokerage Related Professions ...................................................................................... 1-32
Real Estate Industry Members ............................................................................................... 1-33
Real Estate Lawyers ............................................................................................................... 1-34
Real Estate Appraisers ........................................................................................................... 1-34
Real Property Assessors ......................................................................................................... 1-34
Real Property Inspectors ........................................................................................................ 1-35
Mortgage Insurers .................................................................................................................. 1-36
Land Surveyors ...................................................................................................................... 1-37
Title Insurers .......................................................................................................................... 1-37
Mortgage Lenders .................................................................................................................. 1-37
Condominium Document Reviewers ..................................................................................... 1-37
Appendix
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta iv
UNIT 2: INTRODUCTION TO MORTGAGES
Unit Overview ...................................................................................................................................... 2-1
Unit Learning Objectives ................................................................................................................. 2-1
Session 1: Mortgage Overview ........................................................................................................... 2-2
Session Overview ............................................................................................................................. 2-2
Learning Objectives ................................................................................................................. 2-2
Mortgage Terms and Definitions ..................................................................................................... 2-2
Sources of Mortgage Financing ....................................................................................................... 2-4
Institutional Lenders ................................................................................................................. 2-4
Non-Institutional Lenders ........................................................................................................ 2-7
Government Funding ................................................................................................................ 2-8
Private Lenders ......................................................................................................................... 2-9
Session 2: Qualifications for Mortgage Financing ........................................................................ 2-12
Session Overview ........................................................................................................................... 2-12
Learning Objectives ............................................................................................................... 2-12
Purposes for Mortgage Financing .................................................................................................. 2-12
Finance Purchase .................................................................................................................... 2-12
Finance New Construction ..................................................................................................... 2-12
Refinance ................................................................................................................................ 2-13
Equity Take-Out ..................................................................................................................... 2-13
Borrower Qualifications ................................................................................................................. 2-14
Credit Analysis ....................................................................................................................... 2-14
Affordability Guidelines ................................................................................................................. 2-17
Residential Mortgages ............................................................................................................ 2-17
Commercial/Industrial Mortgages .......................................................................................... 2-18
Agri-Business Mortgages ....................................................................................................... 2-20
Impact of Credit Analysis on Mortgage Lending ........................................................................... 2-21
Prime Lending ........................................................................................................................ 2-21
Near-Prime Lending ............................................................................................................... 2-21
Sub-Prime Lending ................................................................................................................ 2-21
Session 3: Mortgage Insurance and Mortgage Security ............................................................... 2-23
Session Overview ........................................................................................................................... 2-23
Learning Objectives ............................................................................................................... 2-23
Conventional Mortgage vs. High Ratio Mortgage ......................................................................... 2-23
Mortgage Insurance ........................................................................................................................ 2-24
Origins of Mortgage Insurance in Canada ............................................................................. 2-25
Mortgage Insurance Providers................................................................................................ 2-26
Mortgage Security .......................................................................................................................... 2-28
Mortgage Priority and Title Registration ............................................................................... 2-29
Mortgagee Priority Rights ...................................................................................................... 2-29
Primary and Collateral Security ............................................................................................. 2-30
General Security Agreement .................................................................................................. 2-31
Promissory Note ..................................................................................................................... 2-31
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta v
Session 4: Types of Mortgages ........................................................................................................ 2-32
Session Overview ........................................................................................................................... 2-32
Learning Objectives ............................................................................................................... 2-32
Assumable Mortgage ..................................................................................................................... 2-32
Equity Mortgage ............................................................................................................................. 2-33
Vendor Take-Back Mortgage ......................................................................................................... 2-33
Agreement for Sale ......................................................................................................................... 2-34
Wraparound Mortgage.................................................................................................................... 2-34
Blanket Mortgage ........................................................................................................................... 2-35
Builder’s Loan or Draw Mortgage ................................................................................................. 2-35
Interim or Bridge Financing ........................................................................................................... 2-35
Participating Mortgage ................................................................................................................... 2-36
Discount Mortgage ......................................................................................................................... 2-36
Collateral Mortgage ........................................................................................................................ 2-36
Reverse Mortgage ........................................................................................................................... 2-37
Purchase Plus Improvements Mortgage ......................................................................................... 2-37
Leasehold Mortgage ....................................................................................................................... 2-37
Session 5: Mortgage Features and Privileges ................................................................................. 2-39
Session Overview ........................................................................................................................... 2-39
Learning Objectives ............................................................................................................... 2-39
Open Mortgage and Closed Mortgage ........................................................................................... 2-39
Open Mortgage ....................................................................................................................... 2-39
Closed Mortgage .................................................................................................................... 2-39
Fixed, Variable and Adjustable Rate Mortgages............................................................................ 2-40
Fixed Rate Mortgage .............................................................................................................. 2-40
Variable Rate Mortgage ......................................................................................................... 2-40
Adjustable Rate Mortgage ...................................................................................................... 2-41
Mortgage Privileges ....................................................................................................................... 2-41
Early Renewal Privilege ......................................................................................................... 2-41
Prepayment Privilege ............................................................................................................. 2-42
Mortgage Portability .............................................................................................................. 2-42
Mortgage Expandability ......................................................................................................... 2-43
Cash Back ............................................................................................................................... 2-43
Municipal Tax Installment Payment Plan .............................................................................. 2-43
Mortgage Payment Methods........................................................................................................... 2-43
Blended Payment .................................................................................................................... 2-44
Periodic Payment .................................................................................................................... 2-44
Interest-Only Payment ............................................................................................................ 2-44
Mortgage Payout Penalties ............................................................................................................. 2-44
3-Month Interest Penalty ........................................................................................................ 2-44
Interest Rate Differential ........................................................................................................ 2-44
Appendix
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta vi
UNIT 3: CONTRACT LAW
Unit Overview ...................................................................................................................................... 3-1
Unit Learning Objectives ................................................................................................................. 3-1
Session 1: Common Law and Real Property ................................................................................... 3-2
Session Overview ............................................................................................................................. 3-2
Learning Objectives ................................................................................................................. 3-2
Canadian Legal System .................................................................................................................... 3-2
Statute Law ............................................................................................................................... 3-2
Case Law .................................................................................................................................. 3-2
Common Law ........................................................................................................................... 3-3
Development of Canadian Law ........................................................................................................ 3-3
Development of Real Property Law ................................................................................................. 3-4
Doctrine of Tenure ................................................................................................................... 3-4
Doctrine of Estates ................................................................................................................... 3-5
Dower Act in Alberta ....................................................................................................................... 3-6
Statute of Frauds ............................................................................................................................... 3-6
Session 2: Contract Law ..................................................................................................................... 3-7
Session Overview ............................................................................................................................. 3-7
Learning Objectives ................................................................................................................. 3-7
Definition of a Contract.................................................................................................................... 3-7
Essential Elements of a Contract ...................................................................................................... 3-8
Capacity of the Parties .............................................................................................................. 3-8
Legal Object ............................................................................................................................. 3-8
Intent to Contract ...................................................................................................................... 3-8
Consideration ........................................................................................................................... 3-9
Mutual Agreement .................................................................................................................... 3-9
Genuine Consent ...................................................................................................................... 3-9
Void, Voidable or Illegal Contracts ................................................................................................ 3-10
Contract Conditions ........................................................................................................................ 3-11
Conditions Precedent .............................................................................................................. 3-11
Conditions Subsequent ........................................................................................................... 3-12
Contract Terms ............................................................................................................................... 3-12
Termination or Discharge of Contracts .......................................................................................... 3-12
Performance ........................................................................................................................... 3-12
Mutual Agreement .................................................................................................................. 3-12
Frustration .............................................................................................................................. 3-13
Operation of Law ................................................................................................................... 3-13
Breach .................................................................................................................................... 3-13
Remedies for Breach of Contract ................................................................................................... 3-13
Monetary Damages ................................................................................................................ 3-13
Quantum Meruit ..................................................................................................................... 3-14
Specific Performance ............................................................................................................. 3-14
Injunction ............................................................................................................................... 3-14
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta vii
Session 3: Contracts in Mortgage Brokerage ................................................................................. 3-15
Session Overview ........................................................................................................................... 3-15
Learning Objectives ............................................................................................................... 3-15
Mortgage Brokerage Contracts ...................................................................................................... 3-15
Brokerage Employment Contracts ......................................................................................... 3-15
Real Estate Purchase Contracts .............................................................................................. 3-16
Mortgage Contracts between Borrowers and Lenders ........................................................... 3-16
Brokerage Service Agreements with Lenders and/or Borrowers ........................................... 3-16
UNIT 4: REAL PROPERTY LAW AND RELATED LEGISLATION
Unit Overview ...................................................................................................................................... 4-1
Unit Learning Objectives ................................................................................................................. 4-1
Session 1: Real Property Ownership ................................................................................................ 4-2
Session Overview ............................................................................................................................ 4-2
Learning Objectives ................................................................................................................. 4-2
Overview of Real Property ............................................................................................................... 4-2
Characteristics of Land ..................................................................................................................... 4-2
Real Property and Personal Property ................................................................................................ 4-3
Types of Estates in Land .................................................................................................................. 4-4
Fee Simple ................................................................................................................................ 4-4
Leasehold Estate ....................................................................................................................... 4-4
Life Estate ................................................................................................................................ 4-5
Real Property Rights and Ownership ............................................................................................... 4-5
Sole Ownership ........................................................................................................................ 4-6
Dower Rights............................................................................................................................ 4-6
Joint Tenancy ........................................................................................................................... 4-7
Tenancy in Common ................................................................................................................ 4-7
Legislated Limitations to Ownership Rights .................................................................................... 4-8
Powers of Government ............................................................................................................. 4-8
Surface Rights and Mineral Rights .......................................................................................... 4-8
Session 2: Registered Interests in Land .......................................................................................... 4-10
Session Overview ........................................................................................................................... 4-10
Learning Objectives ............................................................................................................... 4-10
Registered Interests in Land ........................................................................................................... 4-10
Registered Encumbrances .............................................................................................................. 4-11
Easement ................................................................................................................................ 4-11
Caveat ..................................................................................................................................... 4-12
Encroachments ....................................................................................................................... 4-12
Restrictive Covenants ............................................................................................................. 4-13
Liens ....................................................................................................................................... 4-13
Builders’ Liens ....................................................................................................................... 4-13
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta viii
Certificates of Lis Pendens ..................................................................................................... 4-15
Leases ..................................................................................................................................... 4-15
Writs of Enforcement ............................................................................................................. 4-16
Party Wall Agreements .......................................................................................................... 4-16
Mortgages ............................................................................................................................... 4-16
Mortgage Priority ........................................................................................................................... 4-17
Interests with Priority Over a Mortgage ......................................................................................... 4-19
Property Taxes........................................................................................................................ 4-19
Condominium Fees ................................................................................................................ 4-19
Session 3: Land Titles System and Title Registration ................................................................... 4-21
Session Overview ........................................................................................................................... 4-21
Learning Objectives ............................................................................................................... 4-21
Land Registration Systems ............................................................................................................. 4-21
Private Conveyancing (Transfer) ........................................................................................... 4-21
Deeds Registration ................................................................................................................. 4-21
Torrens System ....................................................................................................................... 4-22
Torrens System of Land Titles Registration ................................................................................... 4-22
Key Principles of the Torrens System .................................................................................... 4-23
Land Titles Act ................................................................................................................................ 4-24
Land Titles Offices ......................................................................................................................... 4-24
Land Titles Assurance Fund ........................................................................................................... 4-25
Land Title Conveyancing ............................................................................................................... 4-25
Title Registration ............................................................................................................................ 4-26
Title Registration Process ....................................................................................................... 4-26
Certificate of Title .................................................................................................................. 4-27
Types of Registered Documents............................................................................................. 4-28
Discharge of Registration ....................................................................................................... 4-28
Transfer of Title ..................................................................................................................... 4-29
Historical Title Search .................................................................................................................... 4-29
Conducting a Title Search .............................................................................................................. 4-30
How to Conduct Searches Using SPIN .................................................................................. 4-31
Session 4: Legal Land Descriptions ................................................................................................ 4-33
Session Overview ........................................................................................................................... 4-33
Learning Objectives ............................................................................................................... 4-33
Alberta Land Surveyors .................................................................................................................. 4-33
Legal Land Descriptions................................................................................................................. 4-34
Undivided Land ...................................................................................................................... 4-34
Subdivided Lands ................................................................................................................... 4-37
Survey Plans ................................................................................................................................... 4-38
Fee Simple Plans .................................................................................................................... 4-38
Condominium Plans ............................................................................................................... 4-39
Strata Plans ............................................................................................................................. 4-40
Real Property Reports .................................................................................................................... 4-40
Current Real Property Reports ............................................................................................... 4-41
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta ix
Information Provided by Real Property Reports .................................................................... 4-41
Municipal Certificate of Compliance ..................................................................................... 4-42
Benefits of a Real Property Report......................................................................................... 4-45
Title Insurance ................................................................................................................................ 4-45
Lender Policy ......................................................................................................................... 4-46
Owner Policy .......................................................................................................................... 4-46
Summary of Benefits .............................................................................................................. 4-49
Session 5: Municipal Government Act ............................................................................................. 4-50
Session Overview ........................................................................................................................... 4-50
Learning Objectives ............................................................................................................... 4-50
Municipal Development Plan ......................................................................................................... 4-50
Municipal Land Use Bylaw ............................................................................................................ 4-51
Land Use Districts .......................................................................................................................... 4-52
Residential Districts ............................................................................................................... 4-52
Commercial Districts .............................................................................................................. 4-52
Industrial Districts .................................................................................................................. 4-53
Special Districts ...................................................................................................................... 4-53
Permitted vs. Discretionary Use ..................................................................................................... 4-53
Development Permits ..................................................................................................................... 4-54
Building Permits ............................................................................................................................. 4-54
Illegal and Non-Conforming Uses .................................................................................................. 4-55
Land Use Verification .................................................................................................................... 4-56
Building Codes ............................................................................................................................... 4-57
Municipal Property Assessment ..................................................................................................... 4-58
Municipal Property Taxation Process ............................................................................................ 4-60
Summary of Municipal Taxation Process .............................................................................. 4-61
Local Improvement Taxes .............................................................................................................. 4-61
Property Tax Adjustments .............................................................................................................. 4-62
Property Tax Payments .................................................................................................................. 4-62
Session 6: Other Real Property Legislation ................................................................................... 4-64
Session Overview ........................................................................................................................... 4-64
Learning Objectives ............................................................................................................... 4-64
Condominiums ............................................................................................................................... 4-64
Types of Condominiums ........................................................................................................ 4-65
Condominium Title Searches ................................................................................................. 4-66
Condominium Documents ...................................................................................................... 4-68
Cooperatives ................................................................................................................................... 4-72
Environmental Legislation ............................................................................................................. 4-73
Agricultural and Recreational Land Ownership ............................................................................. 4-73
Further Resources ........................................................................................................................... 4-74
Appendix
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta x
UNIT 5: MORTGAGE LAW AND RELATED LEGISLATION
Unit Overview ...................................................................................................................................... 5-1
Unit Learning Objectives ................................................................................................................. 5-1
Session 1: Introduction to Mortgage Law ........................................................................................ 5-2
Session Overview ............................................................................................................................. 5-2
Learning Objectives ................................................................................................................. 5-2
Origins of Mortgage Law ................................................................................................................. 5-2
Covenants of a Mortgage ................................................................................................................. 5-3
Borrower Covenants ................................................................................................................. 5-3
Lender Covenants ..................................................................................................................... 5-5
Title Registration of Mortgage ......................................................................................................... 5-6
Priority of Mortgage ......................................................................................................................... 5-7
Postponement of Mortgage............................................................................................................... 5-8
Transfer of Mortgage ........................................................................................................................ 5-9
Assignment of Mortgage ................................................................................................................ 5-10
Assumption of Mortgage ................................................................................................................ 5-10
Discharge of Mortgage ................................................................................................................... 5-12
Session 2: Mortgage Default and Enforcement Remedies ............................................................ 5-13
Session Overview ........................................................................................................................... 5-13
Learning Objectives ............................................................................................................... 5-13
Mortgage Enforcement Remedies .................................................................................................. 5-13
Action on Covenant for Payment ................................................................................................... 5-14
Foreclosure ..................................................................................................................................... 5-15
Foreclosure Process ................................................................................................................ 5-15
Personal Property Security Act ...................................................................................................... 5-21
Session 3: Fair Trading Act .............................................................................................................. 5-24
Session Overview ........................................................................................................................... 5-24
Learning Objectives ............................................................................................................... 5-24
Fair Trading Act and Mortgage Brokerage .................................................................................... 5-24
Cost of Credit Disclosure ............................................................................................................... 5-25
Restrictions on Advance Fees ................................................................................................ 5-26
Disclosure Statement ...................................................................................................................... 5-27
Notice ..................................................................................................................................... 5-28
Calculating the Cost of Credit ........................................................................................................ 5-29
Floating Interest Rates ............................................................................................................ 5-30
Renewals ................................................................................................................................ 5-30
Advertising ............................................................................................................................. 5-30
Credit Reports ................................................................................................................................. 5-31
Session 4: Related Legislation ......................................................................................................... 5-32
Session Overview ........................................................................................................................... 5-32
Learning Objectives ............................................................................................................... 5-32
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xi
Personal Information Protection Act ............................................................................................. 5-32
Accountability ........................................................................................................................ 5-34
Obtaining Consent .................................................................................................................. 5-35
Types of Consent .................................................................................................................... 5-36
Identifying the Purpose for Collecting Personal Information ................................................ 5-37
Right of Access to Personal Information ............................................................................... 5-38
Protecting Personal Information ............................................................................................. 5-38
Record Retention and Destruction Policies ............................................................................ 5-39
Penalties and Enforcement ..................................................................................................... 5-40
Personal Information Protection and Electronic Documents Act .................................................. 5-40
Canada Interest Act ........................................................................................................................ 5-42
Criminal Code of Canada ............................................................................................................... 5-44
Criminal Interest Rate ............................................................................................................ 5-44
Theft and Fraudulent Activities .............................................................................................. 5-45
Competition Act .............................................................................................................................. 5-46
Proceeds of Crime (Money Laundering) and Terrorist Financing Act .......................................... 5-47
Appendix
UNIT 6: THE REAL ESTATE ACT, RULES AND REGULATIONS
Unit Overview ...................................................................................................................................... 6-1
Unit Learning Objectives ................................................................................................................. 6-2
Session 1: Introduction to the Real Estate Act .................................................................................. 6-3
Session Overview ............................................................................................................................. 6-3
Learning Objectives ................................................................................................................. 6-3
Overview of the Real Estate Act ...................................................................................................... 6-3
The Act ..................................................................................................................................... 6-4
Amendments to the Act ............................................................................................................ 6-5
The Rules.................................................................................................................................. 6-6
The Regulations ........................................................................................................................ 6-7
The Bylaws ............................................................................................................................... 6-8
Changes to the Legislation ............................................................................................................... 6-8
Purposes of RECA ............................................................................................................................ 6-9
Information Bulletins ............................................................................................................. 6-10
RECA Guides ......................................................................................................................... 6-10
Session 2: Mortgage Broker Authorizations .................................................................................. 6-11
Session Overview ........................................................................................................................... 6-11
Learning Objectives ............................................................................................................... 6-11
Requirement to Be Authorized ....................................................................................................... 6-11
Authorization Exemptions ...................................................................................................... 6-13
Authorization and Jurisdiction ............................................................................................... 6-13
The Authorization Process ............................................................................................................. 6-14
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xii
Key Concepts in Licensing..................................................................................................... 6-15
Overview of the Authorization Process .................................................................................. 6-16
Meet Enrollment Requirements: Step 1 ................................................................................. 6-17
Meet Education Requirements: Step 2 ................................................................................... 6-18
Request Certified Criminal Record Check: Step 3 ................................................................. 6-19
Obtain Employment with Brokerage: Step 4 ......................................................................... 6-21
Executive Director Determines Suitability: Step 5 ................................................................ 6-21
RECA Issues Authorization: Step 6 ....................................................................................... 6-25
Complete Re-Licensing Education: Step 7 ............................................................................ 6-27
Renew Registration: Step 8 .................................................................................................... 6-28
Authorization Reinstatement .................................................................................................. 6-29
Classes of Licences ........................................................................................................................ 6-31
The Mortgage Associate ......................................................................................................... 6-32
The Mortgage Broker ............................................................................................................. 6-33
The Mortgage Brokerage ....................................................................................................... 6-33
Authorization Outcomes ................................................................................................................. 6-35
Authorization Refusal ............................................................................................................ 6-35
Authorization Suspension or Cancellation ............................................................................. 6-36
Review of the Executive Director’s Decision ........................................................................ 6-41
Authorization Termination ..................................................................................................... 6-41
Industry Withdrawal and Lifetime Ban .................................................................................. 6-42
Session 3: Industry Member Responsibilities and Prohibitions ................................................... 6-44
Session Overview ........................................................................................................................... 6-44
Learning Objectives ............................................................................................................... 6-44
Notification to RECA by Industry Members .................................................................................. 6-44
Industry Standards of Practice ........................................................................................................ 6-46
Industry Member Responsibilities .................................................................................................. 6-46
Act Honestly ........................................................................................................................... 6-47
Provide Competent Service .................................................................................................... 6-47
Disclosure of Compensation .................................................................................................. 6-48
Disclose Conflicts of Interest ................................................................................................. 6-49
Industry Member Prohibitions ........................................................................................................ 6-50
Misrepresentation ................................................................................................................... 6-50
Fraudulent and Unlawful Activities ....................................................................................... 6-51
Written Service Agreements........................................................................................................... 6-52
Protection of Client Information .................................................................................................... 6-53
Brokerage Duty to Maintain Confidentiality .......................................................................... 6-54
Potential Problem Areas for Brokerages ................................................................................ 6-55
Requirements of Privacy Legislation ..................................................................................... 6-55
Referrals ......................................................................................................................................... 6-56
Referrals and Client Information ............................................................................................ 6-57
Brokerage Support Personnel ......................................................................................................... 6-58
Mortgage Brokerage Assistants.............................................................................................. 6-59
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xiii
Session 4: Mortgage Brokerage Industry Responsibilities/Prohibitions ..................................... 6-62
Session Overview ........................................................................................................................... 6-62
Learning Objectives ............................................................................................................... 6-62
Mortgage Brokerage Responsibilities ............................................................................................ 6-62
Mortgage Brokerage Prohibitions .................................................................................................. 6-63
Mortgage Broker Responsibilities .................................................................................................. 6-64
Delegation by the Broker ....................................................................................................... 6-67
Mortgage Associate Responsibilities ............................................................................................. 6-68
Mortgage Broker and Mortgage Associate Prohibitions ................................................................ 6-70
Incentives........................................................................................................................................ 6-70
Brokerage Incentive Policies and Procedures ........................................................................ 6-71
Inducements .................................................................................................................................... 6-72
Collection of Fees ........................................................................................................................... 6-72
Information Verification Disclosure ............................................................................................... 6-73
Obligations to a Lender Client ....................................................................................................... 6-74
Best Practices When Representing a Lender .......................................................................... 6-75
Best Practices When Administering a Loan ........................................................................... 6-76
Delivery of Documents................................................................................................................... 6-78
Personal Mortgage Deals ................................................................................................................ 6-78
Brokerage Trust Accounts .............................................................................................................. 6-80
Brokerage Records ......................................................................................................................... 6-80
Purpose of Record Retention .................................................................................................. 6-81
Record Retention Period ........................................................................................................ 6-82
Record Retention Options ...................................................................................................... 6-82
Requirement to Maintain Records in Alberta ......................................................................... 6-83
Session 5: Audits, Investigations and Disciplinary Proceedings .................................................. 6-84
Session Overview ........................................................................................................................... 6-84
Learning Objectives ............................................................................................................... 6-84
RECA Audits .................................................................................................................................. 6-84
Audit Process.......................................................................................................................... 6-85
Audit Outcomes ...................................................................................................................... 6-86
RECA Investigations ...................................................................................................................... 6-87
Jurisdiction and the Act .......................................................................................................... 6-87
RECA Investigations and Administrative Law ...................................................................... 6-89
Refuse to Investigate, Discontinue an Investigation or Direct no Further Action ................ 6-90
Requirement to Cooperate ...................................................................................................... 6-90
Investigation Processes ................................................................................................................... 6-93
Conduct Deserving of Sanction .............................................................................................. 6-93
Complaint Evaluation ............................................................................................................. 6-94
Disposition of the Complaint by the Executive Director ....................................................... 6-96
Other Options ......................................................................................................................... 6-96
Disciplinary Actions ....................................................................................................................... 6-96
Review by Case Presenter ...................................................................................................... 6-97
Consent Agreement ................................................................................................................ 6-97
Hearing Panel ......................................................................................................................... 6-98
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xiv
Appeal of a Hearing Panel Decision ...................................................................................... 6-99
Appeal to the Court ................................................................................................................ 6-99
Publication of Information ..................................................................................................... 6-99
Session 6: Advertising Guidelines ................................................................................................. 6-101
Session Overview ......................................................................................................................... 6-101
Learning Objectives ............................................................................................................. 6-101
Advertising Defined ..................................................................................................................... 6-101
Applicable Legislation ................................................................................................................. 6-102
Advertising Requirements ............................................................................................................ 6-102
Not False or Misleading ....................................................................................................... 6-102
Done on Behalf of the Brokerage ......................................................................................... 6-103
Include Full Brokerage Name .............................................................................................. 6-103
Name of Industry Member ................................................................................................... 6-104
Advertising Essentials .................................................................................................................. 6-104
Brokerage Policies and Procedures ...................................................................................... 6-104
Performance Guarantees ...................................................................................................... 6-105
Special Expertise .................................................................................................................. 6-105
Material Representations and Verifiable Statements ........................................................... 6-105
Achievement Awards ........................................................................................................... 6-106
Professional Designations .................................................................................................... 6-106
Years of Experience ............................................................................................................. 6-106
Clearly Indicated .................................................................................................................. 6-107
Special Advertising Considerations ............................................................................................. 6-108
Teams ................................................................................................................................... 6-108
Unlicensed Assistants ........................................................................................................... 6-108
Recruitment Advertising ...................................................................................................... 6-108
Competition Bureau ............................................................................................................. 6-109
Comparative Advertising ..................................................................................................... 6-109
Electronic Advertising and Social Media ..................................................................................... 6-109
Online Solicitation ................................................................................................................ 6-109
Full Disclosure ..................................................................................................................... 6-110
Brokerage and Associate Websites ...................................................................................... 6-110
Social Media ......................................................................................................................... 6-111
Online Advertising ............................................................................................................... 6-111
Broker Remains Responsible ....................................................................................................... 6-112
Appendix
UNIT 7: MORTGAGE BROKERAGE RELATIONSHIPS
Unit Overview ...................................................................................................................................... 7-1
Unit Learning Objectives ................................................................................................................. 7-2
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xv
Session 1: Agency and Agency Relationships .................................................................................. 7-3
Session Overview ............................................................................................................................. 7-3
Learning Objectives ................................................................................................................. 7-3
Defining Agency .............................................................................................................................. 7-3
Defining an Agency Relationship .................................................................................................... 7-3
Creating an Agency Relationship ..................................................................................................... 7-4
Relationship Obligations .................................................................................................................. 7-5
Session Summary ............................................................................................................................. 7-6
Session 2: Mortgage Brokerage Relationship with Industry Member .......................................... 7-7
Session Overview ............................................................................................................................. 7-7
Learning Objectives ................................................................................................................. 7-7
Agency Relationship with Industry Member ................................................................................... 7-7
Employment Relationship with Industry Member ........................................................................... 7-8
Industry Member Obligations to Their Brokerage ........................................................................... 7-9
General Obligations ................................................................................................................ 7-10
Regulatory Obligations .......................................................................................................... 7-10
Fiduciary Obligations ............................................................................................................. 7-11
Session Summary ........................................................................................................................... 7-11
Session 3: Mortgage Brokerage Relationships with the Public .................................................... 7-12
Session Overview ........................................................................................................................... 7-12
Learning Objectives ............................................................................................................... 7-12
Mortgage Brokerage Relationship Responsibilities ....................................................................... 7-12
Mortgage Brokerage Relationship Options .................................................................................... 7-13
Mortgage Brokerage Acts as an Agent ................................................................................... 7-13
Mortgage Brokerage Works with a Customer ........................................................................ 7-14
Mortgage Brokerage Acts as an Intermediary ........................................................................ 7-14
Mortgage Brokerage Legal Obligations ................................................................................. 7-14
Mortgage Brokerage Acts as an Agent ........................................................................................... 7-14
Mortgage Brokerage Obligations as Agent for Borrower or Lender...................................... 7-15
Mortgage Brokerage Works with a Customer ................................................................................ 7-17
Mortgage Brokerage Obligations to Customer ...................................................................... 7-17
Mortgage Brokerage Acts as an Intermediary ................................................................................ 7-18
Mortgage Brokerage Obligations as an Intermediary ............................................................ 7-19
Mortgage Brokerage Establishes Relationship Model ................................................................... 7-21
Mortgage Brokerage and Industry Member Advertising ....................................................... 7-21
Session Summary ........................................................................................................................... 7-22
Session 4: Mortgage Brokerage Duties (Services) ......................................................................... 7-23
Session Overview ........................................................................................................................... 7-23
Learning Objectives ............................................................................................................... 7-23
Aligning Brokerage Duties (Services) with the Brokerage Relationship ....................................... 7-23
Brokerage Duties (Services) as an Agent ....................................................................................... 7-24
Brokerage Duties as Agent for the Borrower ......................................................................... 7-24
Brokerage Duties as Agent for the Lender ............................................................................. 7-25
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xvi
Brokerage Working with a Customer ............................................................................................. 7-25
Brokerage Working with Borrower as Customer ................................................................... 7-26
Brokerage Working with Lender as Customer ....................................................................... 7-26
Comparing Brokerage Duties in an Agency - Customer Transaction ............................................ 7-26
Brokerage Duties Acting as Intermediary ...................................................................................... 7-27
Additional Information ................................................................................................................... 7-28
Session Summary ........................................................................................................................... 7-29
Session 5: Mortgage Brokerage Disclosure Documents ................................................................ 7-30
Session Overview ........................................................................................................................... 7-30
Learning Objectives ............................................................................................................... 7-30
Mortgage Brokerage Disclosure Requirements ................................................................................... 7-30
Mortgage Brokerage Disclosure Forms............................................................................................... 7-31
Mortgage Brokerage Relationship Disclosure ............................................................................... 7-31
Mortgage Brokerage Compensation Disclosure ............................................................................. 7-32
Summary ........................................................................................................................................ 7-33
More on Mortgage Brokerage Disclosure ........................................................................................... 7-34
Timing of Disclosures .................................................................................................................... 7-34
Obtaining Borrower’s Informed Consent ....................................................................................... 7-34
Retaining Disclosure Documents ................................................................................................... 7-35
The 4 D’s of Disclosure in Mortgage Brokerage ................................................................................ 7-35
Step 1: Decide ................................................................................................................................ 7-35
Step 2: Disclose .............................................................................................................................. 7-35
Step 3: Document ........................................................................................................................... 7-36
Step 4: Do ....................................................................................................................................... 7-36
Appendix
UNIT 8: MORTGAGE FRAUD AWARENESS
Unit Overview ...................................................................................................................................... 8-1
Unit Learning Objectives ................................................................................................................. 8-1
Session 1: Mortgage Fraud – Definition, Extent, Impact ............................................................... 8-2
Session Overview ............................................................................................................................. 8-2
Defining Mortgage Fraud ................................................................................................................. 8-2
Extent of Mortgage Fraud ................................................................................................................ 8-2
Impact of Mortgage Fraud ................................................................................................................ 8-3
Public Services ......................................................................................................................... 8-4
Communities ............................................................................................................................ 8-4
Individuals ................................................................................................................................ 8-4
Businesses ................................................................................................................................ 8-5
Professions ............................................................................................................................... 8-5
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xvii
Session 2: The Many Faces of Mortgage Fraud .............................................................................. 8-6
Session Overview ............................................................................................................................. 8-6
Learning Objectives ................................................................................................................. 8-6
Session Introduction ......................................................................................................................... 8-6
Types of Mortgage Fraud ................................................................................................................. 8-6
Fraud for Housing .................................................................................................................... 8-7
Fraud for Profit ......................................................................................................................... 8-8
Common Mortgage Fraud Schemes ................................................................................................. 8-8
False Documentation ................................................................................................................ 8-9
Non-Occupancy Scheme .......................................................................................................... 8-9
Name Manipulation .................................................................................................................. 8-9
Identity Theft ............................................................................................................................ 8-9
Mortgage Assumption Schemes ............................................................................................. 8-10
Seller Financing Schemes ...................................................................................................... 8-11
Private Financing Scheme ...................................................................................................... 8-11
Bankruptcy Fraud ................................................................................................................... 8-11
Debt Consolidation / Foreclosure Schemes ............................................................................ 8-12
Title Fraud .............................................................................................................................. 8-12
False Deposit .......................................................................................................................... 8-12
Equity Access Scheme ........................................................................................................... 8-13
Re-Development Scheme ....................................................................................................... 8-13
Secret Second ......................................................................................................................... 8-13
Air Loan ................................................................................................................................. 8-14
Inflated Appraisal ................................................................................................................... 8-14
Vendor Cash-Back Scheme .................................................................................................... 8-14
Contract Kiting ....................................................................................................................... 8-15
Straw Buyers .......................................................................................................................... 8-15
Property Flips ......................................................................................................................... 8-16
Session 3: Detecting Mortgage Fraud ............................................................................................. 8-17
Session Overview ........................................................................................................................... 8-17
Mortgage Fraud Detection .............................................................................................................. 8-17
Red Flags of Mortgage Fraud ......................................................................................................... 8-17
Red Flags Regarding Identity of Buyers/Borrowers .............................................................. 8-18
Red Flags Regarding Property Value ..................................................................................... 8-18
Red Flags Indicating Unusual Transactions ........................................................................... 8-18
Red Flags Regarding Industry Member Conduct ................................................................... 8-19
Red Flags Regarding Brokerage Operations .......................................................................... 8-20
Red Flags Regarding Appraisal Agreement Issues ................................................................ 8-20
Red Flags Regarding Other Appraisal-Related Issues ........................................................... 8-21
Case Study in Mortgage Fraud ....................................................................................................... 8-21
Case Study Introduction ......................................................................................................... 8-21
Case Study: The Big Scheme ................................................................................................. 8-21
Impact of the Mortgage Fraud ................................................................................................ 8-24
Consequences of the Mortgage Fraud .................................................................................... 8-24
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xviii
Session 4: Other Fraud Related Activities ..................................................................................... 8-25
Session Overview ........................................................................................................................... 8-25
Learning Objectives ............................................................................................................... 8-25
Money Laundering ......................................................................................................................... 8-25
Drug Operations ............................................................................................................................. 8-27
Related Resources .................................................................................................................. 8-27
Grow Operations .................................................................................................................... 8-28
Drug Laboratories .................................................................................................................. 8-29
Session 5: Preventing Mortgage Fraud .......................................................................................... 8-30
Session Overview ........................................................................................................................... 8-30
Learning Objectives ............................................................................................................... 8-30
RECA’s Role in Mortgage Fraud Prevention ................................................................................. 8-30
Obligation to Cooperate with RECA...................................................................................... 8-30
RECA’s Role in Reducing Mortgage Fraud ................................................................................... 8-32
Industry Member’s Role in Reducing Mortgage Fraud .................................................................. 8-34
Guidelines for Mortgage Broker/Associate Originated Applications .................................... 8-34
Protecting Your Identity ................................................................................................................. 8-37
Protecting Your Clients .................................................................................................................. 8-38
Trends in Mortgage Fraud .............................................................................................................. 8-39
Fraudsters Seek Accomplices ................................................................................................. 8-40
Fraudsters Use Technology .................................................................................................... 8-40
Fraudsters Find Opportunities in Any Real Estate Market Condition.................................... 8-41
Fraudsters Find Opportunities with Any Property Type ........................................................ 8-42
Fraudsters Constantly Adapt .................................................................................................. 8-43
Fighting Mortgage Fraud ................................................................................................................ 8-43
Be Serious About Mortgage Fraud ......................................................................................... 8-44
Know Who You Are Dealing With ........................................................................................ 8-44
Ask Questions ........................................................................................................................ 8-45
Report Mortgage Fraud If You Detect It ................................................................................ 8-45
Legal Implications of Mortgage Fraud ........................................................................................... 8-45
Summary ........................................................................................................................................ 8-46
Resources........................................................................................................................................ 8-47
Alberta Resources .................................................................................................................. 8-47
Canada Resources .................................................................................................................. 8-47
Appendix
UNIT 9: ETHICS, PROFESSIONAL CONDUCT AND RISK REDUCTION
Unit Overview ...................................................................................................................................... 9-1
Unit Learning Objectives ................................................................................................................. 9-1
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xix
Session 1: Personal Ethics and Conduct ........................................................................................... 9-2
Session Overview ............................................................................................................................ 9-2
Learning Objectives .................................................................................................................. 9-2
Definition of Ethics .......................................................................................................................... 9-2
Ethics and Moral Development ........................................................................................................ 9-2
Level I – Egocentric Interest .................................................................................................... 9-3
Level II – Social Convention.................................................................................................... 9-4
Level III – Abstract Reasoning ................................................................................................ 9-4
Approaches to Ethical Dilemmas ..................................................................................................... 9-5
Utilitarian Ethics ...................................................................................................................... 9-5
Duty-Based Ethics .................................................................................................................... 9-5
Influences on Ethics and Professional Conduct ............................................................................... 9-6
Canadian Law ........................................................................................................................... 9-6
Real Estate Act ......................................................................................................................... 9-7
Industry Ethics.......................................................................................................................... 9-7
Brokerage Ethics ...................................................................................................................... 9-7
Personal Ethics ......................................................................................................................... 9-8
Session 2: An Ethical Decision-Making Model ................................................................................ 9-9
Session Overview ............................................................................................................................ 9-9
Learning Objectives .................................................................................................................. 9-9
Introduction to an Ethical Decision-Making Model ......................................................................... 9-9
Evaluating Ethical Dilemmas ......................................................................................................... 9-10
1. Recognize Ethical Dilemma .............................................................................................. 9-10
2. Analyze Ethical Dilemma ................................................................................................. 9-11
3. Test Ethical Options .......................................................................................................... 9-12
3A. Seek Assistance with Ethical Dilemma ........................................................................... 9-13
4. Implement Ethical Decision .............................................................................................. 9-14
Practicing Professional Ethics ........................................................................................................ 9-14
Session 3: Ethics and Professional Conduct ................................................................................... 9-16
Session Overview .......................................................................................................................... 9-16
Learning Objectives ................................................................................................................ 9-16
Role of Ethics in Professional Conduct .......................................................................................... 9-16
Professional Standards Defined ...................................................................................................... 9-17
Professional Standards of Practice ......................................................................................... 9-17
Benefits of Professional Standards ......................................................................................... 9-18
The Act and Expectations of Professional Conduct ........................................................................ 9-19
Industry Member Responsibilities.......................................................................................... 9-19
Industry Member Prohibitions................................................................................................ 9-20
Complaints Regarding Professional Conduct ......................................................................... 9-20
Conduct Deserving Sanction .................................................................................................. 9-21
Session 4: Risk Reduction ................................................................................................................ 9-23
Session Overview .......................................................................................................................... 9-23
Learning Objectives ................................................................................................................ 9-23
Mortgage Associates Program Table of Contents
The Fundamentals of Mortgage Brokerage
© 2011 Real Estate Council of Alberta xx
Definition of Tort Law ................................................................................................................... 9-23
Misrepresentation ........................................................................................................................... 9-24
Types of Misrepresentation .................................................................................................... 9-24
Principle of Vicarious Liability ...................................................................................................... 9-24
Real Estate Assurance Fund ........................................................................................................... 9-25
Errors and Omissions Insurance ..................................................................................................... 9-25
Professional Conduct and Self-Regulation ..................................................................................... 9-26
Broker’s Role in Professional Conduct .................................................................................. 9-27
Associate’s Role in Professional Conduct .............................................................................. 9-27
Professional Conduct ...................................................................................................................... 9-28
Professional Courtesy ..................................................................................................................... 9-28
The Professional Industry Member ................................................................................................ 9-30
Legislation .............................................................................................................................. 9-30
Brokerage ............................................................................................................................... 9-30
Professional Practice .............................................................................................................. 9-30
Appendix
GLOSSARY: THE FUNDAMENTALS OF MORTGAGE BROKERAGE