BC Ministry of Finance consulting on reverse mortgages as part of its review of the Mortgage Brokers Act
6 February 2020
By Kevin Zakreski
The Mortgage Brokers Act (MBA) was originally enacted in 1972 as consumer protection legislation in response to an increased number of mortgage brokers and complaints of gross and unconscionable interest rates and fees. At the time, mortgage brokers were considered the lenders of last resort; however, over the years the industry has changed and has become part of the mainstream financial market.
Although it has been amended several times since its enactment, the MBA has not kept pace with evolving national and international standards in consumer protection, changes in the financial services market and emerging issues such as money laundering in the real estate market.
The discussion paper sets out a thoroughgoing review of the act and options to reform it, one aspect of which is of particular interest to BCLI.
In 2006, BCLI’s division the Canadian Centre for Elder Law published its Report on Reverse Mortgages. This report recommended that British Columbia enact legislation specifically addressing reverse mortgages, providing borrowers under those mortgages with a cooling-off period, enhanced disclosure, encouragement to obtain independent legal and financial advice, and consumer-protection remedies. CCEL recommended that British Columbia look to Manitoba’s legislation as a model. CCEL’s recommendations were endorsed in the Canadian Bar Association—British Columbia Branch’s Agenda for Justice 2017.
Now, the ministry discussion paper is asking for public comment on dedicated reverse-mortgage legislation:
While the MBA applies to reverse mortgages, it does not require any enhanced disclosure, which may be needed to protect the vulnerable populations most likely to access these products. In 2006, the British Columbia Law Institute and the Canadian Centre for Elder Law published a report on reverse mortgages. The report recommended that legislation should specifically address reverse mortgages, with a focus on enhanced disclosure requirements, an extended cooling-off period and independent counselling.
In surveying best practices across Canada, New Brunswick, Ontario and Saskatchewan currently require independent legal advice before a borrower can take out a reverse mortgage. The Mortgage Act of Manitoba sets rules for reverse mortgages to limit fees, provides for an extended cooling-off period and requires disclosure that highlights the effect of an interest rate change on the mortgage balance.
1) What are the benefits and costs of requiring independent legal advice before taking out a reverse mortgage?
2) What is an appropriate extended cooling off period for reverse mortgages?
3) Should disclosure of the effects of an interest rate change on the mortgage balance be required for reverse mortgages?
4) Are there other disclosures or requirements that could better protect consumers not contemplated here?
In addition to its section on reverse mortgages, the discussion paper asks for public comment on proposals to comprehensively update and modernize the Mortgage Brokers Act, consistent with these principles:
The following objectives provide a framework to guide the analysis of issues during the review to:
- Reflect recognized national and international standards, while respecting the context of the BC marketplace including the size, scope and diversity of the industry.
- Enable early detection, timely intervention and resolution of issues.
- Promote clear, consistent and harmonized regulation.
- Foster an environment that promotes industry growth, innovation, and responsible business conduct.
Broadly speaking, the Ministry is proposing to meet these objectives by developing legislation that clearly sets out current best practices by:
- Requiring licensing of all mortgage brokering with limited exemptions.
- Providing for minimum standards of conduct and a duty of care to consumers.
- Requiring transparency and disclosure in mortgage transactions.
- Providing enhanced disclosure and reporting requirements for more complex products.
- Reducing regulatory gaps, leveraging work done in other provinces and respecting existing inter-jurisdictional agreements.
The consultation is open until 13 March 2020. There is more information on how to make a submission on the ministry’s consultation webpage.