2012 annual information return mortgage brokerages and …€¦ · business and 101 mortgage...

2012 Annual Information Return Mortgage Brokerages and Administrators

Results Summary Report

2012 Annual Information Return Results Summary Report

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Table of Contents

EXECUTIVE SUMMARY .............................................................................................. 2ABOUT FSCO ........................................................................................................ 3INTRODUCTION ....................................................................................................... 3RESPONSES PROVIDED BY MORTGAGE BROKERAGES ........................................................ 4Brokerage Information.................................................................................................................................. 4

Trust Account Information (Questions 1 – 2) ............................................................................................... 7

Supervision of Operations (Questions 3 – 11) .............................................................................................. 9

Records Information (Questions 12 – 13) ................................................................................................... 17

Portfolio Details / Information (Questions 14 – 20) ................................................................................... 19

Syndication (Questions 21 – 23) ................................................................................................................. 27

Complaints and Complaint Handling (Questions 24 – 25) .......................................................................... 31

Suitability (Questions 26 – 35) .................................................................................................................... 32

Reporting Changes (Questions 36 – 38) ..................................................................................................... 36

Remuneration/Payments (Questions 39 – 41) ........................................................................................... 37

RESPONSES PROVIDED BY MORTGAGE ADMINISTRATORS ................................................. 39Administrator Information .......................................................................................................................... 39

Trust Account Information (Questions 1 – 2) ............................................................................................. 40

Supervision of Operations (Questions 3 – 7) .............................................................................................. 43

Securitization (Questions 8 – 9) .................................................................................................................. 47

Records Information (Question 10) ............................................................................................................ 49

Unimpaired Working Capital (Question 11)................................................................................................ 51

Complaints and Complaint Handling (Questions 12 – 13) .......................................................................... 51

Suitability (Questions 14 – 21) .................................................................................................................... 52

Reporting Changes (Questions 22 – 24) ..................................................................................................... 54

Remuneration/Payments (Questions 25 – 27) ........................................................................................... 56


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Executive Summary The Financial Services Commission of Ontario (FSCO) is an agency of Ontario’s Ministry of Finance that is responsible for regulating mortgage brokerages, administrators, brokers and agents in Ontario. FSCO is also responsible for overseeing other financial services sectors, including insurance, pension plans, credit unions and caisses populaires, loan and trust companies, and co-operative corporations in Ontario.

This report provides a summary of responses that were collected from 1,113 mortgage brokerages and 101 mortgage administrators from the 2012 Annual Information Return (AIR). This represents a 98 per cent filing compliance rate for each licence type.

The 2012 AIR was required to be completed and submitted on or before March 31, 2013. It collects information from mortgage brokerages and administrators about their business practices and internal controls for the 2012 calendar year (January to December 2012).

During the reporting period, 1,113 mortgage brokerages conducted approximately $108 billion of mortgage business and 101 mortgage administrators reported that they administered $159 billion in mortgages. Of these brokerages, 78 per cent engaged in dealing in mortgages. For the 22 per cent of brokerages that did not conduct any business in 2012, almost half of these brokerages were primarily involved in real estate activities. During the reporting period, 83 per cent of all administrators reported that they administered mortgages.

Since 2010, there has been a steady decline in the use of trust accounts by mortgage brokerages. In 2012, only 10 per cent of mortgage brokerages used trust accounts. In 2012 the total number of trust accounts in the mortgage brokering sector decreased by 45 per cent.

Central Ontario continued to have the greatest number of branch offices, as a total of 1,458 offices were reported by both mortgage brokerages and administrators. Within central Ontario, 85 per cent of branch offices were in Toronto (GTA). Northern Ontario had the lowest concentration of branch offices, as only 60 offices were reported in this region.

As of December 31, 2012, mortgage brokerages were responsible for employing 2,292 mortgage brokers, 9,271 mortgage agents and 1,258 other staff. As a whole, the mortgage brokering sector was responsible for employing a total of 12,821 individuals. In comparison to 2011, this figure has declined by 11 per cent in 2012.

To comply with legislative requirements for supervision of their offices, 93 per cent of mortgage brokerages confirmed that they have reviewed their policies and procedures during 2012.

Twenty-three per cent of mortgage brokerages funded more than half of their business with one lender, including the mortgage brokerage itself. This trend was stable over the past three years. Of these brokerages, 35 per cent primarily sourced their funding from banks, 22 per cent obtained funds from trust companies, 12 per cent were financed by private lenders, and 11 per cent used their own capital to back their clients’ mortgages.

Five per cent of mortgage brokerages syndicated $3 billion in mortgages, of which three per cent were sub-prime. In comparison to 2011, this represents a 46 per cent increase in the total value of mortgages that were syndicated during the reporting period. In 2012, less than one per cent of mortgage brokerages and five


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per cent of mortgage administrators were involved in arranging securitization facilities, or in making securitization sales.

In comparison to 2011, the number of complaints that were received by mortgage brokerages and administrators remained relatively flat in 2012. Overall, there was a relatively small ratio of complaints and errors and omissions insurance claims against the total number of mortgage transactions. This suggests that the majority of mortgage brokerages and administrators are complying with the law and serving their customers’ needs.

About FSCO FSCO is an agency of Ontario’s Ministry of Finance that is responsible for regulating mortgage brokerages, administrators, brokers and agents in Ontario. FSCO is also responsible for overseeing other financial services sectors, including insurance, pension plans, credit unions and caisses populaires, loan and trust companies, and co-operative corporations in Ontario.

FSCO’s legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates. As an organization, FSCO is committed to being a progressive and fair regulator, supporting competitive financial services sectors.

FSCO uses a risk-based approach to regulation that focuses on allocating valuable regulatory resources to those areas that are deemed to have the highest risk. The benefit of this approach is the regulatory resources are maximized and compliance costs are minimized. The AIR provides one source of information to support this risk-based approach.

Introduction This report provides a summary of responses that were collected from 1,113 mortgage brokerages and 101 mortgage administrators from the 2012 AIR. This represents a 98 per cent filing compliance rate for each licence type.

The 2012 AIR was required to be completed and submitted on or before March 31, 2013. It collects information from mortgage brokerages and administrators about their business practices and internal controls for the 2012 calendar year (January to December 2012). The information that was collected by FSCO was used to assess the risks that are associated with carrying out mortgage brokering business in Ontario. The information was also used to assess the overall compliance of mortgage brokerages and administrators with the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA), and to obtain a better understanding of the mortgage brokering sector as a whole.

The 2012 AIR differs slightly from the 2011 AIR. New questions were introduced for both mortgage brokerages and administrators. These new questions are identified throughout this report. Where possible, comparative data is provided for the 2010 and 2011 AIR filings.

FSCO took enforcement action against mortgage brokerages and administrators that filed their AIRs after the March 31st due date. Based on data that was provided in the 2012 AIR responses, and following a risk-based approach, FSCO also took enforcement action in cases where there was non-compliance with the MBLAA.


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Responses Provided by Mortgage Brokerages

Brokerage Information

This section provides general information about mortgage brokerages.

QUESTION (A) Errors and Omissions Insurance Providers

Under the MBLAA, each mortgage brokerage that is licensed with FSCO must have current professional liability or errors and omissions insurance coverage (E&O).

Figure 1 – E&O Insurance by Provider

Responses 2010 2011 2012

# % # % # %

Provider A 605 52% 527 47% 442 40%

Provider B 4 0% 131 12% 199 18%

Provider C 116 10% 187 17% 166 15%

Provider D 96 8% 128 12% 168 15%

Provider E 13 1% 22 2% 16 1%

Other Insurance Providers 327 29% 116 10% 122 11%

TOTAL 1,161 100% 1,111 100% 1,113 100%

NOTE: Insurers’ names are not identified to avoid disclosing commercial information about market share.

In the past couple of years, five insurance companies have provided about 90 per cent of the E&O insurance coverage for mortgage brokerages in Ontario. In 2010, the same five companies only covered about 70 per cent of the E&O insurance market. Although E&O insurance sales are primarily concentrated among five insurance companies, it appears there is still adequate availability of E&O insurance for mortgage brokerages in Ontario.

QUESTION (B) Was your E&O insurance obtained through membership in one of the following industry associations?

Figure 2 – E&O Insurance by Membership in an Industry Association

New for 2012 AIR Responses 2012

# %

Industry Association A 406 36%

Industry Association B 186 17%

N/A 521 47%

TOTAL 1,113 100%

NOTE: The industry association names are not identified because they are confidential.

More than half of mortgage brokerages obtained their E&O Insurance through two industry associations.


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QUESTION (D) Is your brokerage a franchise?

Figure 3 – Brokerages that are Franchises

Responses 2010 2011 2012 Market Share1

# % # % # % # Mortgages $ Mortgages

Franchise 241 21% 270 24% 291 26% 19% 13% Not a Franchise 920 79% 841 76% 822 74% 81% 87% TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

1 Market share is based on 2012 AIR data for both mortgage brokerages and administrators, and represents a portion of the total mortgages reported in dollar value and in number of transactions, respectively (see question 14).

During the reporting period, 291 mortgage brokerages (or 26 per cent of all brokerages) were franchises. Over the past three years, the number of mortgage brokerages that are set up as franchises increased by 20 per cent.

From a market share perspective, franchises accounted for 19 per cent of all transactions in the mortgage brokering sector in 2012, compared to 16 per cent in 2011. However, from a dollar perspective, franchises accounted for a lower percentage of the overall market in 2012 (13 per cent) compared to 2011 (19 per cent). The number of transactions corresponding to franchises increased by 10 per cent year-over-year, while the value of these transactions decreased by 26 per cent year-over-year.

QUESTION (F) Brokerages licensed as administrators

Figure 4 – Brokerages that are Licensed as Administrators

Responses 2010 2011 2012 # % # % # %

Dually Licensed 56 5% 58 5% 62 6% Brokerage Licence Only 1,105 95% 1053 95% 1051 94% TOTAL 1,161 100% 1,111 100% 1,113 100%

Figure 4 shows that dually licensed businesses (i.e., businesses that are licensed as both mortgage brokerages and administrators) represent a small percentage of the mortgage brokering sector.

QUESTION (G) Which of the following MBLAA business activities was your brokerage engaged in, in Ontario, during the reporting period

New for 2012 AIR

In 2012, the majority of mortgage brokerages (68 per cent) only dealt with mortgages.

Three per cent of mortgage brokerages were involved in all three business activities: dealing, trading, and lending in mortgages.


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For the 22 per cent of mortgage brokerages that reported no engagement in any of the MBLAA business activities, a detailed breakdown is presented in Figure 6.

Figure 5 – Types of Mortgage Activities

Responses 2012 # %

Dealing in Mortgages only 758 68%

Trading in Mortgages only 1 0%

Mortgage Lending only 10 1%

Dealing/Trading in Mortgages 12 1%

Dealing/Lending in Mortgages 59 5%

Trading/Lending in Mortgages 3 0%

Dealing/Trading/Lending in Mortgages 31 3%

None of the above 239 22% TOTAL 1,113 100%

QUESTION (G/i) If none of the above, what was your brokerage’s primary line of business?

Figure 6 – Other Lines of Business for Mortgage Brokerages

Responses 2010 2011 2012

# % # % # %

Real Estate 172 56% 151 59% 111 46%

Advisory Services/Consulting 7 3% 14 6% 19 8%

Mortgage Referrals 9 3% 12 5% 14 6%

Dealing/Trading 14 5% 12 5% 10 4%

Mortgage Lending/Investing 12 4% 8 3% 9 4%

Legal Services 10 3% 11 4% 6 3%

Administering Mortgages 2 1% 1 0.3% 3 1%

Construction 1 0.3% 2 0.7% 2 1%

Accounting 2 1% 2 0.7% 0 0%

Other 76 25% 41 16.3% 65 27%

TOTAL 305 100% 254 100% 239 100%

Over the past three years, there has been continuous decrease in the number of mortgage brokerages that are not involved in any of the three business activities of dealing, trading and/or lending in mortgages. Since 2010, the total number of brokerages that are not involved in dealing, trading and/or lending in mortgages has declined by 22 per cent.

Real estate remains the primary activity for these mortgage brokerages. Almost half of these mortgage brokerages reported that they perform real estate activities. This represents a decline from 2011, when 59 per cent of brokerages reported that they engage in real estate activities.


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In 2012, mortgage brokerages reported that other top activities, other than real estate, included advisory/ consulting services and mortgage referral services. These results were similar to FSCO’s findings from the 2011 AIR.

Sixty-five mortgage brokerages stated that they were mostly inactive, or just recently started the brokerage (this is captured by “other” in Figure 6).

Trust Account Information (Questions 1 – 2)

Reporting and reconciling trust accounts is a legislative requirement under the MBLAA. In the event of a shortfall, the brokerage is responsible for reporting the shortfall to the Superintendent of Financial Services.

The following questions gather trust account information for compliance purposes.

QUESTION 1 Did the brokerage have a trust account under the MBLAA?

Figure 7 – Brokerages with Trust Accounts

Responses 2010 2011 2012 Market Share # % # % # % # Mortgages $ Mortgages

Yes 150 13% 123 11% 107 10% 42% 36% No 1,011 87% 988 89% 1,006 90% 58% 64% TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

The number of mortgage brokerages with trust accounts remains relatively small in the mortgage brokering sector. In 2012, 10 per cent of brokerages had trust accounts, and in 2011, this applied to 11 per cent of brokerages. Furthermore, over the past three years the number of mortgage brokerages with trust accounts has continuously decreased. In 2012, there were 29 per cent less brokerages that had trust accounts than in 2010.

QUESTION 1 (a) If yes, how many MBLAA trust accounts did the brokerage have as of December 31?

Figure 8 – Number of Trust Accounts per Brokerage

Responses By # of Trust Accounts

2010 2011 2012

# % # % # % 1 account 130 76% 107 73% 92 65% 2 accounts 20 24%

40 accounts

9 12%

51 accounts

6 8% 3 accounts 0 0% 6 12% 4 8% 4 accounts 0 0% 1 3% 2 6% 5 accounts 0 0% 0 0% 0 0% 6 accounts 0 0% 0 0% 2 8% 7 accounts 0 0% 0 0% 1 5% TOTAL 170 100% 147 100% 143 100%


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In line with the decrease in the number of brokerages with trust accounts, since 2010 there has been a decline in the total number of trust accounts in the overall mortgage brokering sector. In 2012, there were 143 MBLAA trust accounts reported, compared to 170 trust accounts in 2010. This represents a decrease of 16 per cent.

The majority of brokerages that have trust accounts (or 86 per cent) reported that they only hold one account. This trend was stable over the past three years.

In 2010, the brokerages that had trust accounts reported that they only held one or two accounts. However, in 2012 these brokerages reported that they hold up to seven trust accounts per entity. (Two brokerages reported six accounts and one reported seven accounts.)

QUESTION 1 (b) Of the total number, how many MBLAA trust accounts were opened during the reporting period?

Figure 9 – Number of New Trust Accounts Opened in 2012

New for 2012 AIR Responses by Number of Trust Accounts

2012

# % 1 account 16 64% 2 accounts

9 accounts

0 0% 3 accounts 1 12% 4 accounts 0 0% 6 accounts 1 24% 7 accounts 0 0% TOTAL 25 100%

Eighteen brokerages opened 25 MBLAA trust accounts in 2012. This represents 17 per cent of the total number of trust accounts in the mortgage brokering sector. The majority of these brokerages (64 per cent) opened only one trust account.

QUESTION 1 (b/i) Did the brokerage obtain prior written consent from the Superintendent pursuant to O. Reg. 188/08, s.50 (2)?

QUESTION 1 If not, please explain why.

Figure 10 – Total Trust Accounts for the Sector

New for 2012 AIR Responses 2012 # %

Yes 3 17% No 15 83% TOTAL 18 100%


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Of the 18 mortgage brokerages that opened trust accounts in 2012, the majority were not compliant with the MBLAA since they did not obtain prior written consent from the Superintendent.

QUESTION 1 (c) Did the brokerage reconcile all of its MBLAA trust accounts?

QUESTION 1 (c/i) If not, please explain why.

Figure 11 – Reconciliation of Trust Accounts

Responses 2010 2011 2012 # % # % # %

Yes 146 97% 119 97% 105 98% No 4 3% 4 3% 2 2% TOTAL 150 100% 123 100% 107 100%

Two of the 107 mortgage brokerages that reported trust accounts in 2012 did not reconcile them, as they did not have any activity take place. In 2011, four brokerages did not reconcile their trust accounts for the same reason.

QUESTION 2 Was there a shortfall, at any time, in any of the MBLAA trust accounts?

QUESTION 2 (a) If yes, has it been corrected and when?

QUESTION 2 ( b) If yes, has it been reported to Superintendent?

Figure 12 – Shortfall in Trust Accounts

Responses 2010 2011 2012

# % # % # %

Yes 2 1% 2 2% 2 2%

No 148 99% 121 98% 105 98%

TOTAL 150 100% 123 100% 107 100%

In 2012, two mortgage brokerages experienced shortfalls either due to a deposit being late or due to an error.

Supervision of Operations (Questions 3 – 11)

The following questions refer to the supervision of operations. FSCO is interested in determining whether the brokerage’s operations were organized in a way that facilitated supervision. These questions also included information on brokerages with active branch offices.

QUESTION 3 Where was the brokerage’s head office in Canada as of December 31?

In 2012, the majority of mortgage brokerages (97 per cent) that were licensed with FSCO had head offices that were located in Ontario.


For those brokerages that had a head office outside of Ontario, the majority had head offices in British Columbia (53 per cent). This trend was stable over the past three years.

Figure 13 – Head Office Location by Province

QUESTION 4 Provide the total number of offices for each Ontario region as of December 31, as applicable:

Figure 14 – Number of Offices for Each Ontario Region

Responses By Region 2010 2011 2012 # % # % # %

Central Ontario 1,344 73% 1,329 72% 1,363 74% Eastern Ontario 193 10% 198 11% 203 11% Northern Ontario 62 3% 68 4% 59 3% Southwestern Ontario 252 14% 243 13% 222 12% Total Offices 1,851 100% 1,838 100% 1,847 100%

Figures 15 to 18 show the top five office locations within each Ontario region.

In 2012, 62 per cent of all offices in Ontario were in the Greater Toronto Area (GTA), resulting in most offices being located in the Central Ontario region (74 per cent). This trend was stable over the past three years.

Other top office locations were Ottawa (104 offices), Barrie (72 offices), London (67 offices) and Hamilton (66 offices). More details are available in Figures 15 to 18.

ONTARIO 97.1%

BRITISH COLUMBIA

1.5% MANITOBA

0.2%

ALBERTA 0.7% QUEBEC

0.4% NOVA

SCOTIA 0.1%

PEI

0%

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QUESTION 4(a) List the top five locations by the number of offices for each Ontario region, as applicable:

Figure 15 – Top Locations in Central Ontario

Top Five Locations 2010 2011 2012

# of Offices % of Total Offices # of Offices % of Total Offices # of Offices % of Total

Offices

Toronto (GTA) 1,124 84% 1,110 84% 1,144 84% Barrie 63 5% 66 5% 72 5% Hamilton 67 5% 68 5% 66 5% Bowmanville 9 1% 11 1% 18 1% Orangeville 16 1% 16 1% 13 1% Orillia 18 1% 13 1% 13 1%

Figure 16 – Top Locations in Eastern Ontario


# of Offices % of Total Offices # of Offices % of Total

Offices # of Offices % of Total Offices

Ottawa 96 50% 98 49% 104 54% Kingston 21 11% 21 11% 21 11% Peterborough 17 9% 16 8% 17 9% Belleville 25 13% 21 11% 16 8% Pembroke 5 3% 9 5% 13 7% Trenton 5 3% 8 4% 6 3%

Figure 17 – Top Locations in Northern Ontario




Sudbury 15 24% 16 24% 14 26% North Bay 13 21% 17 25% 13 25% Sault Ste. Marie 11 18% 12 18% 10 19% Thunder Bay 8 13% 10 15% 7 13% Timmins 5 8% 5 7% 6 11%

Figure 18 – Top Locations in Southwestern Ontario




London 69 27% 69 28% 67 31% Kitchener 34 13% 39 16% 29 13% Windsor 28 11% 25 10% 22 10% Cambridge 18 7% 16 7% 18 8% Brantford 26 10% 19 8% 15 7%


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QUESTION 5 How many offices in Ontario did the brokerage have that were open to the public as of December 31?

Figure 19 – Number of Offices Open to the Public

Responses By Brokerage Form of Business

2010 2011 2012 # % # % # %

Corporations 1,516 95% 1,526 95% 1,522 95% Sole Proprietors 79 5% 80 5% 65 4% Partnerships 8 0% 7 0% 8 1% TOTAL 1,603 100% 1,613 100% 1,595 100%

Over the past three years, there has been a continuous decline in the total number of offices that mortgage brokerages have open to the public. In 2012, the majority of mortgage brokerages’ offices were open to the public (86 per cent). Of these offices, the vast majority (95 per cent) belonged to mortgage brokerages that were registered as corporations. These trends were stable over the past three years.

QUESTION 6 Of the offices open to the public in Ontario, how many were more than 100 km away from the Principal Broker’s primary location of work?

The purpose of this question was to evaluate the ability of the principal broker to effectively supervise the branch offices that are open to the public, as required by the MBLAA.

Figure 20 – Branch Offices that are More Than 100 km from the Primary Location

Responses By Brokerage Form of Business 2010 2011 2012 # % # % # %

Corporations 222 97% 242 98% 176 97% Sole Proprietors 4 2% 3 1% 4 2% Partnerships 2 1% 2 1% 2 1% TOTAL 228 100% 247 100% 182 100%

In 2012, only 11 per cent of all branch offices were located more than 100 kilometers away from the principal broker’s primary work location. These numbers were slightly higher in 2011 (15 per cent) and 2010 (14 per cent).


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QUESTION 7 Please select all applicable steps taken (as described in your policies and procedures) by the brokerage during the reporting period to provide adequate supervision for all offices in Ontario where business was transacted.

Figure 21 – Top 5 Steps for Adequate Supervision

Responses 2010 2011 2012

# % # % # % 1. Onsite Supervisor/ Manager 968 83% 939 85% 945 85% 2. Policies and Procedures/ Best Practices 813 70% 861 77% 878 79% 3. File Review/File Audits 820 71% 848 76% 857 77% 4. Regular Meetings (monthly, quarterly etc.) 716 62% 764 69% 783 70% 5. Training/Support (phone/email/fax/online) 711 61% 762 69% 776 70% 6. Other 170 15% 140 13% 123 11%

NOTE: Brokerages have reported multiple steps.

Since 2010, mortgage brokerages have reported consistent information about the five most common steps they take to provide adequate supervision for their offices. There was an overall increase in the frequency of each of these steps, with the exception of the most frequently used one (i.e., having an onsite supervisor/manager), which remained relatively consistent from 2010 to 2012. (This step was selected by 85 per cent of brokerages in both 2011 and 2012.)

In 2012, other steps were reported by 123 brokerages (or 11 per cent of brokerages). This represents a four per cent decrease from 2010, when 15 per cent of brokerages reported other steps for supervision. Of these brokerages, about 28 per cent did not conduct any business in 2012. Other responses included brokerages that provided more descriptive comments about their supervision methods, such as: frequency of office visits, staff inspections, file audits, meetings, or the different types of training they provide their staff (e.g., in-house training, online education centres, webinars, off-site training through conferences, trade shows and industry events).

QUESTION 8 Did your brokerage deal or trade in mortgages in other Canadian provinces/territories?

The purpose of this question was to gain a better understanding of the brokerage’s scope of business and the potential impact on the marketplace.

Figure 22 – Mortgage Brokering Activities in Other Canadian Provinces/Territories

Responses 2010 2011 2012 Market Share

# % # % # % # Mortgages

$ Mortgages

Yes 148 13% 116 10% 140 13% 70% 52% No 1,013 87% 995 90% 973 87% 30% 48% TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

In 2012, 13 per cent of mortgage brokerages in Ontario conducted business in other Canadian provinces or territories. This was relatively at the same level in 2010.


QUESTION 8 (a) What percentage of mortgage business, approximately, was conducted in each province/territory, as applicable?

QUESTION 8 (a/i) % of # Mortgages?

QUESTION 8 (a/ii) % of $ Mortgages?

Outside of Ontario, in 2012 the top two provinces where mortgage brokerages dealt or traded in mortgages were Alberta and British Columbia. This trend was stable over the past three years.

Figure 23 – Top 5 Locations for Business Conducted Outside of Ontario

Alberta British Columbia Quebec Nova Scotia Manitoba2010 86 87 68 49 452011 76 63 53 40 352012 91 76 49 44 48

Figure 24 – Percentage of Business Conducted Outside of Ontario in 2012

Canadian Province

(excluding Ontario)

Number of Brokerages by % of Business Range Average % of Business 0% to 25% 26% to 50% 51% to 75% 76% to 100%

# Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort.

Alberta 73 71 13 14 1 3 4 3 17% 17% British Columbia 63 63 10 6 2 6 1 1 13% 15% Manitoba 48 47 - 1 - - 1 1 4% 4% New Brunswick 41 40 - 1 - - - - 2% 2% Newfoundland and Labrador 28 28 2 2 - - - - 4% 4% Northwest Territories 3 3 - - - - - - 1% 1% Nova Scotia 43 41 1 1 - - - - 4% 3% Nunavut - - - - - - - - - - Prince Edward Island 14 14 - - - - - - 1% 1% Quebec 45 43 3 5 - - 1 1 10% 11% Saskatchewan 40 39 - - 1 1 - - 5% 4% Yukon 6 6 - - - - - - 5% 5%

0

25

50

75

100

Num

ber o

f Res

pons

es

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Similar to 2011, the majority of brokerages that dealt or traded mortgages in other provinces had less than 25 per cent of their businesses in these provinces. In 2012, seven brokerages reported more than 75 per cent of their businesses in these provinces, compared to three brokerages in 2011.

QUESTION 9 If the brokerage's head office is in Ontario, how many offices did the brokerage have in Canada, outside of Ontario, as of December 31?

Figure 25 – Number of Canadian Offices Outside Ontario

Responses By Number of Offices Range

2010 2011 2012 # % # % # %

0 (No offices outside of Ontario) 1,115 96% 997 90% 1036 96% 1 to 10

518

offic

es 40 4%

467

offic

es 103 9%

399

offic

es

42 4% 11 to 50 4 0% 10 1% 1 0% Over 50 2 0% 1 0% 2 0% TOTAL 1,161 1,111 100% 1,113 100%

The majority of brokerages with a head office in Ontario have no offices in other provinces. Since 2010, there has been a decrease in the number of offices outside of Ontario that belong to brokerages with head office in Ontario.

QUESTION 10 Please provide the following information about the number of brokers/agents registered by the brokerage in Ontario during the reporting period:

Figure 26 – Brokerage Employment Information

Brokerage Form of Business

2011 2012


Number of Employees As of December 31, 2011


Number of Employees As of December 31, 2012

# Brokers Agents Other Staff # Brokers Agents Other

Staff Corporation 1,009 2,376 10,326 1,097 1,024 2,180 9,079 904 Sole Proprietor 99 103 41 5 85 90 49 3 Partnership 3 18 110 334 4 22 143 351 TOTAL 1,111 2,497 10,477 1,436 1,113 2,292 9,271 1,258

In 2012, mortgage brokerages employed 11 per cent less people than in 2011. These employment numbers are similar to the level of employment that occurred in 2010. However, the breakdown of brokerages’ employees has changed over the past three years. Since 2010, there has been a steady decrease in the number of mortgage brokers and other staff that are employed by mortgage brokerages. In comparison to 2010, the number of mortgage agents increased by 26 per cent in 2011, but decreased by 12 per cent in 2012.


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QUESTION 10 (a) How many brokers/agents left the brokerage in the reporting period (resigned/ terminated)?

Figure 27 – Brokerage Turnover

Brokerage Form of Business

2010 2011 2012

Total Brokers &

Agents

Total Brokers &

Agents Resigned or Terminated

Turnover Rate

(per 100 brokers or

agents)

Total Brokers &

Agents

Total Brokers &


Turnover Rate

(per 100 brokers or

agents)

Total Brokers &

Agents

Total Brokers &


Turnover Rate

(per 100 brokers or

agents)

# # # # # # # # # Corporation 10,808 3,152 29 12,702 2,460 19 11,259 2,953 26 Sole Proprietor 135 22 16 144 21 15 139 13 9

Partnership 174 16 9 128 8 6 165 12 7

TOTAL 11,117 3,190 29 12,974 2,489 19 11,563 2,978 26

On average, in 2012 mortgage brokerages had 26 per cent of their brokers or agents leave due to a resignation or termination. This level of turnover was similar in 2010, but it represents an increase of 37 per cent from 2011. However, this figure does not necessarily mean that the respective brokers or agents left the mortgage brokering industry. In many cases, they were employed by other mortgage brokerages. 2012 was also a licence renewal period, which in the past accounted for the higher turnover.

QUESTION 10 (b) During the reporting period, did the brokerage terminate a broker/agent for cause?

QUESTION 10 (c) If yes, did you report the matter to FSCO through Licensing Link?

QUESTION 10 (d) Did you report all cases to FSCO pursuant to O. Reg. 188/08 s. 43 (3)?

QUESTION 10 (d/i) If not, please explain why.

Figure 28 – Terminations for Cause

Resp

onse

s 2010 2011 2012

Terminated for Cause

(10b)

Reported using

Licensing Link (10c)

Reported Suitability

(10d)


(10b)

Reported using



(10d)


(10b)

Reported using



(10d)

Yes 23 21 21 21 20 18 19 18 18 No 1,138 2 2 1,090 1 3 1,094 1 1 TOTAL 1,161 23 23 1,111 21 21 1,113 19 19

Since 2010, there has been a continuous decline in the number of brokerages that terminated brokers or agents for cause.

In 2012, only one brokerage did not report the matter to FSCO, as is required by the MBLAA. Additionally, only one mortgage brokerage did not report all of its unsuitable agents to FSCO, as required by legislation.


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QUESTION 11 Did you review the brokerage's policies and procedures pursuant to O. Reg. 410/07 s. 3 (1) during the reporting period?

QUESTION 11 (a) If yes, when were they last updated?

Figure 29 – Reviewing the Brokerage’s Policies and Procedures


Yes 1,040 90% 916 82% 1,034 93% 99% 99%

No 121 10% 195 18% 79 7% 1% 1%

TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

In 2012, a total of 1,034 mortgage brokerages (or 93 per cent) ― these brokerages represent 99 per cent of the market ―reported that they reviewed their policies and procedures in accordance with MBLAA. This is an increase of 13 per cent from 2011.

During this reporting period, 79 brokerages indicated that they did not review their policies and procedures. This represents a decrease of 59 per cent from 2011. Approximately half of these brokerages (or 42 brokerages), did not engage in dealing or trading in mortgages or mortgage lending.

Records Information (Questions 12 – 13)

The purpose of this group of questions was to ensure the prompt retrieval of records to facilitate FSCO’s examination/inspection planning.

QUESTION 12 What format were your required records stored in?

Figure 30 – Format for Storing Records

Responses 2010 2011 2012 # % # % # %

Electronic/Paper 558 48% 508 46% 533 48%

Paper 445 38% 410 37% 374 34%

Electronic 158 14% 193 17% 206 19%

TOTAL 1,161 100% 1,111 100% 1,113 100%

In 2012, almost half of all brokerages (or 48 per cent) stored their records in a combination of electronic and paper formats. This trend was stable over the past three years. Since 2010, there has been a continuous decline in the number of brokerages that only store their records in paper format. There has also been an ongoing increase in the number of brokerages that exclusively store their records in electronic format.


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QUESTION 12 (a) Were the required records retained at the brokerage's principal place of business in Ontario?

In 2012, only 56 mortgage brokerages (or 5 per cent) did not maintain their records at their principal place of business in Ontario. This level has remained consistent in comparison to 2011.

Figure 31 – Records that Were Stored at the Brokerage’s Principal Place of Business

Responses 2010 2011 2012 # % # % # %

Yes 1,095 94% 1055 95% 1057 95% No 66 6% 56 5% 56 5% TOTAL 1,161 100% 1,111 100% 1,113 100%

QUESTION 12 (b) Was the Superintendent notified?

Mortgage brokerages are required to notify the Superintendent if records are not retained at the brokerage’s principal place of business, pursuant to Ontario Regulation 188/08, section 48 (4). In 2012, five brokerages did not provide this notification to FSCO.

Figure 32 – Was the Superintendent Notified if Records are Not Retained at the Brokerage’s Principal Place of Business?

Responses 2010 2011 2012 # % # % # %

Yes 60 91% 52 93% 51 91% No 6 9% 4 7% 5 9% TOTAL 66 100% 56 100% 56 100%

QUESTION 12 (c) If the required records are not retained at the brokerage’s principal place of business in Ontario, what is the retrieval lead time required to access your records?

The purpose of this question was to ensure that records can be promptly retrieved if an audit takes place.

Figure 33 – Required Retrieval Lead Time to Access Records

Within 24 hours 1-3 days Over 3 daysPaper 13 28 5Electronic 35 7 1

Total Number of Brokerages: 56

40

30

20

10

0

Resp

onse

Rat

e


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For those brokerages that stored their records electronically, the majority could access them within one day. Among those brokerages who stored their records in paper format, most could access their records in one to three days.

QUESTION 13 Has your brokerage taken adequate precautions to ensure the security of your records?

QUESTION 13 (a) If yes/no, please explain:

Figure 34 – Precautions to Secure Records

Responses 2010 2011 2012 # % # % # %

Yes 1,161 100% 1,084 98% 1,107 99% No 0 0% 27 2% 6 1% TOTAL 1,161 100% 1,111 100% 1,113 100%

Almost all mortgage brokerages (99 per cent) took preventative measures to ensure the security of their records. These measures ranged from keeping paper files in secured areas to protecting electronic files by using passwords, or utilizing encryption software programs. Only six brokerages indicated that they are not taking adequate precautions to ensure the security of their records. (In 2011 this applied to 27 brokerages.)

Portfolio Details / Information (Questions 14 – 20)

The purpose of this group of questions was to gather statistics to better understand the marketplace.

QUESTION 14 How many mortgage transactions did your brokerage broker and close during the reporting period and what was their value?

Figure 35 – Mortgage Transactions by Form of Business

Brokerage Form of Business 2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages

$ Mortgages (in millions)

# Mortgages $ Mortgages (in millions)

Corporations 225,189 $68,091 245,149 $85,535 213,893 $88,637 Sole Proprietors 987 $240 879 $153 867 $172 Partnerships 36,260 $11,584 47,611 $14,366 61,623 $18,948 TOTAL 262,436 $79,915 293,639 $100,054 276,383 $107,757

NOTE: If two or more brokerages were involved in any one transaction, each brokerage would have reported the transaction.

In 2012, the total value of mortgage transactions that were closed by all types of mortgage brokerages ― this includes corporations, sole proprietors and partnerships ― increased by 8 per cent in comparison to 2011. However, on a year-over-year basis the total number of mortgage transactions that were closed by brokerages decreased by 6 per cent.


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From 2011 to 2012, the total value of mortgage transactions that were closed by mortgage brokerages who are incorporated increased by 4 per cent. During the same period, the number of mortgage transactions that were closed by corporations decreased by 13 per cent.

For brokerages that are set up as sole proprietors, the total value of mortgage transactions that were closed in 2012 increased by 12 per cent in comparison to 2011. In contrast, the total number of transactions that were closed by sole proprietors decreased only marginally (by 1 per cent) during the same period of time.

For brokerages that are partnerships, both the value and the number of mortgage transactions that were closed increased by 32 and 29 per cent respectively.

QUESTION 14 (a) Provide the number and dollar value for the following types of mortgages:

Figure 36 – Types of Mortgages (Residential/Commercial/Other)

Mortgage Type

2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages


# Mortgages


% of Total # Mortgages

% of Total $

Mortgages

Residential 236,868 $58,706 248,629 $75,847 269,725 $90,000 97.6% 83.5%

Commercial 3,560 $13,291 4,506 $16,187 4,536 $17,477 1.6% 16.2%

Other 4,023 $351 4,571 $2,382 2,122 $275 0.8% 0.3%

In line with previous years, residential mortgages represented the vast majority (98 per cent) of all mortgage transactions that were closed by brokerages in 2012. Between 2011 and 2012, the value of residential mortgage transactions increased by 19 per cent. During the same period, the value of commercial mortgage transactions increased by 8 per cent.

Figure 37 – High Ratio and Conventional Mortgages

Mortgage Type

2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages


# Mortgages

$ Mortgages

(in millions)


% of Total $

Mortgages

High Ratio2 122,825 $31,934 128,992 $40,154 136,692 $36,721 49.5% 34.1%

Conventional 112,556 $35,569 119,344 $48,552 127,120 $42,653 46.0% 37.7%

2 High ratio is defined as a Loan to Value Ratio of 80 per cent or more.

Since 2011, the number of mortgage transactions for both conventional and high ratio mortgages increased by 7 and 6 per cent respectively. However, over the same period the total value of conventional mortgages declined by 12 per cent and the total value of high ratio mortgages declined by 9 per cent.


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Figure 38 – First, Second and Third Mortgages

Mortgage Type

2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages


# Mortgages

$ Mortgages

(in millions)


% of Total $

Mortgages

First Mortgages 207,472 $62,219 228,886 $87,179 233,336 $75,310 84.4% 69.9%

Second Mortgages 16,259 $1,927 19,340 $3,471 14,839 $3,702 5.4% 3.4%

Third Mortgages N/A N/A N/A N/A 379 $128 0.1% 0.1%

NOTE: Third mortgage information was new in 2012

In line with previous years, in 2012 the majority of completed mortgage transactions were for first mortgages. First mortgages represented 84 per cent of the total number of mortgages and 70 per cent of the total value of mortgages. Second mortgages represented only five per cent of the total number of mortgage transactions and 3 per cent of the total value of mortgages.

Figure 39 – Types of Mortgages (New Loans/Renewals)

Mortgage Type

2010 2011 2012

# Mortgages $

Mortgages (in millions)

# Mortgages

$ Mortgages

(in millions)

# Mortgages

$ Mortgages

(in millions)


% of Total $

Mortgages

New Loans 188,423 $58,100 187,167 $73,388 182,666 $58,643 66.1% 54.4% Renewals3 45,148 $9,623 47,621 $10,692 65,375 $14,824 23.7% 13.8%

3 Renewals are defined as mortgages that were originally placed by the mortgage brokerage.

From 2011 to 2012, the total value of new mortgage loans decreased by 20 per cent and the value of renewals increased by 11 per cent.

Figure 40 – Types of Mortgages (First Time/Subprime/Reverse)

Mortgage Type

2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages


# Mortgages

$ Mortgages

(in millions)


% of Total $

Mortgages First Time Homebuyers 66,974 $17,591 60,661 $17,327 57,694 $16,286 20.9% 15.1%

Subprime4 16,811 $2,891 17,906 $4,390 17,912 $3,730 6.5% 3.5%

Construction Mortgages N/A N/A N/A N/A 1,100 $2,807 0.4% 2.6%

Reverse 61 $7 323 $57 37 $6 0.0% 0.0%

4 Subprime is defined as arranging a mortgage for an individual(s) with a credit score of 600 points or less (or a reasonable equivalent).


P a g e 22

1000

750

et 500

Ra

esn 250

ops 0

ReFrom 2011 to 2012, the value of mortgage transactions for first time homebuyers decreased by 6 per cent, and the value of sub-prime mortgage transactions deceased by 15 per cent. Over the same period, the value of reverse mortgage transactions decreased by 89 per cent.

QUESTION 15 Provide information regarding the brokerage’s business funded by the following lenders:

New for 2012 AIR

Figure 41 – Mortgages by Type of Lender

Type of Lender 2012

# of Brokerages % of Total # Mortgages % of Total $ Mortgages

Bank 654 50.1% 56.3% Trust Company 560 28.0% 32.6% Private Lender 537 29.8% 26.6% Credit Union 315 11.3% 12.8% Self-Funding 110 39.4% 41.2% Other 243 40.9% 43.6%

In 2012, banks were the main source of funding for most mortgage brokerages (654), followed by trust companies (560) and private lenders (537). Based on the number of mortgages that were funded, banks ranked at the top (50 per cent), followed by self-funded mortgages (39 per cent) and private lenders (30 per cent). Based on the value of funded mortgages, banks also ranked at the top (56 per cent), followed by self-funding (41 per cent) and trust companies (33 per cent).

The “Other” category consisted mostly of mortgage investment corporations. Of note, some mortgage brokerages used more than one lender to fund mortgages.

QUESTION 16 Did the brokerage fund more than 50 per cent of its business with any one lender, including the brokerage itself?

Under the MBLAA, the brokerage must disclose whether the brokerage itself funded more than 50 per cent of its business, or if another lender did, the name of that lender. The brokerage must have this information readily available and disclose it to the borrower upon request.

Figure 42 – Brokerages that Placed More Than 50% of Their Business with One Lender

2010 2011 2012Yes 278 252 253No 883 859 860


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125100

75

et 50

Ra 25

esn 0

opsRe

During this reporting period, 253 mortgage brokerages (or 23 per cent) placed more than 50 per cent of their business with one lender. This trend was stable over the past three years.

QUESTION 16 (a) If yes, what category does the lender belong to?

Of the 253 mortgage brokerages that placed more than 50 per cent of their business with one lender, 35 per cent used banks and 22 per cent used trust companies as their primary source of funding. Although banks remained at the top of the list, since 2010 the number of mortgage brokerages that funded over 50 per cent of their business with banks declined by 18 per cent. Since 2010, the self-funding category increased by 61 per cent.

Figure 43 – Types of Lenders that Brokerages Used to Fund More Than 50% of Their Business with One Lender

Bank Trust Company Other Private

Lender Self-Funding Credit Union

2010 108 80 34 38 18 02011 96 53 36 34 22 112012 89 55 42 30 29 8

QUESTION 17 Did the brokerage buy, sell, or exchange mortgages during this period?

The purpose of Questions 17, 17a and 17b was to assess marketplace risks in order to better understand the market size and its demographics.

Figure 44 – Mortgage Purchases, Sales and/or Exchanges by Brokerages



Yes 36 3% 29 3% 47 4% 38% 31% No 1,125 97% 1,082 97% 1,066 96% 62% 69% TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

During 2012, mortgages were bought, sold or exchanged by 47 mortgage brokerages. This represents a 62 per cent increase since 2011.


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QUESTION 17(a) On behalf of another person or entity?

Figure 45 – Mortgage Purchases, Sales and/or Exchanges on Behalf of Another Person/Entity

Responses 2010 2011 2012

# Brokerages

# Mortgages

$ Mortgages

(in millions)

# Brokerages

# Mortgages


# Brokerages # Mortgages


Yes 14 25,592 $7,948 9 24,454 $7,586 22 35,685 $11,141 No 22 - - 20 - - 25 - - TOTAL 36 25,592 $7,948 29 24,454 $7,586 47 35,685 $11,141

Of those 47 mortgage brokerages, 22 bought, sold or exchanged mortgages on behalf of another person or entity for a total of 35,685 units, which were valued at $11.1 billion. In comparison to 2011, this represents a 46 per cent increase in the number of mortgages and a 47 per cent increase in the total value of mortgages that were handled on another person or entity’s behalf.

QUESTION 17(b) On the brokerage’s own behalf?

Figure 46 – Mortgage Purchases, Sales and/or Exchanges on Behalf of the Brokerage

Responses 2010 2011 2012

# Brokerages

# Mortgages

$ Mortgages

(in millions)

# Brokerages

# Mortgages


# Brokerages # Mortgages


Yes 20 26,859 $6,793 19 58,329 $14,728 27 58,378 $17,143 No 16 - - 10 - - 20 - - TOTAL 36 26,859 $6,793 29 58,329 $14,728 47 58,378 $17,143

Of those 47 mortgage brokerages that bought, sold or exchanged mortgages, 27 acted on their own brokerage’s behalf. This represents 27 per cent of the market based on dollar value, for a total of 58,378 units, which are valued at $17.1 billion. Compared to 2011, the total number of units remained stable, while the value of these units increased by 16 per cent.

Of those 27 mortgage brokerages, 13 new brokerages bought, sold or exchanged mortgages on their own behalf for a total value of $1.4 billion.


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QUESTION 18 If engaged in mortgage lending activities, please provide the total number and dollar value of mortgages funded by the brokerage during the reporting period:

Figure 47 – Mortgages Funded by the Brokerage

Responses 2010 2011 2012

# Brokerages

# Mortgages


# Brokerages

# Mortgages


# Brokerages

# Mortgages


Corporation 67 20,496 3,465 74 64,570 14,022 93 70,490 $18,788

Partnerships 3 10,890 3,557 3 13,717 4,684 4 10,889 $4,709Sole Proprietors 4 16 1 5 35 3 6 32 $5

TOTAL 74 31,402 $7,023 82 78,322 $18,709 102 81,411 $23,502

In 2012, a total of 102 brokerages funded 81,411 mortgages that were valued at $23.5 billion. This represents a 26 per cent increase since 2011. The majority of mortgage brokerages who acted as lenders were corporations.

QUESTION 19 Did your brokerage operate a Mortgage Investment Corporation (MIC5) during the reporting period?

5 A Mortgage Investment Corporation (MIC) is an investment/lending company that is designed specifically for mortgage investing or lending in Canada. It is governed by the Income Tax Act. Profits generated by the MIC are distributed to its shareholders according to their proportionate share.

Figure 48 – Operation of MICs

Responses 2011 2012 Response Rate Response Rate Market Share

# % # % # Mortgages $ Mortgages

Yes 13 1% 12 1% 0.6% 1.9%

No 1,098 99% 1,101 99% 99.4% 98.1%

TOTAL 1,111 100% 1,113 100% 100.0% 100.0%

During 2012, only 12 mortgage brokerages operated a MIC. In contrast, 13 brokerages operated a MIC in 2011.


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QUESTION 19 (a) If yes, what percentage of your business was funded by the MIC, approximately?

New for 2012 AIR

Figure 49 – Percentage of Business that Was Funded by MICs

Responses By Percentage of Business Range

2012 # Brokerages

(Based on % of # Mortgages) # Brokerages

(Based on % of $ Mortgages)

1 - 25% 2 4

26 - 50% 3 2

51 - 75% 1 2

76 - 99% 4 2

100% 2 2 TOTAL 12 12

Of the 12 mortgage brokerages that operated a MIC in 2012, half of them had more than 50 per cent of their business funded by the MIC.

QUESTION 20 Did your brokerage use any other, non-owned, MICs to fund any of its mortgages?

Figure 50 – Business that Was Funded by Other MICs

Responses 2011 2012 Response Rate Response Rate Market Share

# % # % # Mortgages $ Mortgages

Yes 52 5% 80 7% 20.6% 15.4%

No 1,059 95% 1,033 93% 79.4% 84.6%

TOTAL 1,111 100% 1,113 100% 100.0% 100.0%

In 2012, a total of 80 mortgage brokerages (or seven per cent of all mortgage brokerages) used other, non-owned, MICs to fund their mortgages. This represents a 54 per cent increase since 2011.


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QUESTION 20 (a) If yes, what percentage of your business did that represent, approximately?

Figure 51 – Percentage of Mortgages that Were Funded by Other MICs

Responses By Percentage of Business Range

2011 2012

# Brokerages (Based on % of #

Mortgages)

# Brokerages (Based on % of $

Mortgages)

# Brokerages (Based on % of #

Mortgages)

# Brokerages (Based on % of $

Mortgages)

0% (No business) 3 2 6 6

1 - 25% 38 42 62 60

26 - 50% 8 4 4 5

51 - 75% 0 0 3 1

76 - 99% 1 2 1 3

100% 2 2 4 5 TOTAL 52 52 80 80

Of the 80 mortgage brokerages that used other, non-owned MICs to fund their mortgages, most of the brokerages used the MICs to fund up to 25 per cent of their mortgages.

Syndication (Questions 21 – 23)

The purpose of this group of questions was to verify the brokerage’s compliance with its legal obligations under the MBLAA and to gather marketplace statistics.

QUESTION 21 Did the brokerage syndicate mortgages?

Figure 52 – Brokerages that Syndicate Mortgages



Yes 59 5.1% 60 5.4% 59 5.3% 5.2% 8.2%

No 1,102 94.9% 1,051 94.6% 1,054 94.7% 94.8% 91.8%

TOTAL 1,161 100.0% 1,111 100.0% 1,113 100% 100% 100%

In 2012, only 5 per cent of brokerages syndicated mortgages. This trend has remained stable since 2010.


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QUESTION 21 (a) If yes, please provide the following: a) Total number of mortgages b) Total dollar value of mortgages c) Total number of investors d) Designated investors (O. Reg. 188/08 s.2) as a proportion of total investors e) Who administers the mortgages? f) How many of the total syndications are sub-prime and their dollar value?

The following tables provide a summary of the brokerages that syndicated mortgages in both 2011 and 2012.

Figure 53 – Syndicated Mortgages by Market Type for 2011

Responses By Type of Market Syndicated Mortgages Sub-Prime Mortgages (As a portion of all syndications)

# Brokerages (more than one can be selected) # Mortgages $ Mortgages # Mortgages $ Mortgages

Residential 418 799,943,494 66 $12,381,478 42

Commercial 430 1,219,455,189 21 $46,353,191 45

Other 5 4,300,000 - - 3

TOTAL 853 2,023,698,683 87 $58,734,669

Figure 54 – Syndicated Mortgages by Market Type for 2012

Responses By Type of Market Syndicated Mortgages Sub-Prime Mortgages (As a portion of all syndications)

# Brokerages (more than one can be selected) # Mortgages $ Mortgages # Mortgages $ Mortgages

Residential 501 494,310,123 92 $22,717,123 37

Commercial 396 2,367,568,823 5 $2,389,749 44

Other 20 94,574,300 1 $140,000 7

TOTAL 917 $2,956,453,246 98 $ 25,246,872

NOTE: Some brokerages engaged in all three types of mortgages (residential, commercial and other).

In 2012, those 59 mortgage brokerages syndicated 917 mortgages for a total of almost $3 billion. This represents an increase in value of 46 per cent compared to 2011. In regards to sub-prime mortgages, 98 mortgages were syndicated for a total of $25 million. This represents a decrease in value of 57 per cent compared to 2011.

Figure 55 – Designated Investors by Market Type for 2011

Type of Market Total Investors

Designated Investors as a Proportion of Total Investors (Responses By Percentage Range)

# Brokerages

0% 1% - 50% 51% - 99% 100% Residential 837 14 18 1 9 42 Commercial 2,724 11 20 2 12 45 Other 63 2 1 - - 3


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Figure 56 – Designated Investors by Market Type for 2012

Type of Market Total Investors

Designated Investors as a Proportion of Total Investors (Responses By Percentage Range)

# Brokerages

0% 1% - 50% 51% - 99% 100% Residential 1,110 12 12 4 9 37 Commercial 3,810 12 13 5 14 44 Other 339 - 3 2 2 7


In 2012, there were 1,110 and 3,810 investors designated for the residential and commercial markets respectively. In contrast to 2011, this represents an increase of 33 and 40 per cent, respectively.

Figure 57 – Administration of Syndicated Mortgages by Market Type for 2011

Type of Market Investors Self Third Party Administrators

# Brokerages

Residential 11 24 7 42 Commercial 7 27 11 45 Other - 3 - 3

Figure 58 – Administration of Syndicated Mortgages by Market Type for 2012

Type of Market Investors Self Third Party Administrators

# Brokerages

Residential 12 20 5 37 Commercial 9 27 8 44 Other 2 3 2 7


In 2012, more than half of the brokerages administered their own syndicated mortgages in both the residential and commercial markets. This was similar to what occurred in 2011.

QUESTION 22 Did the brokerage arrange or participate in arranging any securitization facilities?

Figure 59 – Brokerages that Arranged or Participated in Securitization Facilities

Responses 2010 2011 2012 Market Share # % # % # % #Mortgages $Mortgages

Yes 2 0.2% 4 0.4% 7 0.6% 33.0% 26.5% No 1,159 99.8% 1,107 99.6% 1,106 99.4% 67.0% 73.5% TOTAL 1,161 100% 1,111 100.0% 1,113 100.0% 100.0% 100.0%


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In 2012, only seven brokerages arranged or participated in arranging securitization facilities. The number of brokerages is marginal, but it represents a significant increase from four brokerages in 2011, and two brokerages in 2010.

QUESTION 22 (a) If yes, please provide the number of instruments and the dollar value of instruments.

Figure 60 – Instruments for Securitization Facilities

Responses # Instruments $ Instruments 2010 97 $1,460,000,000 2011 198 $5,131,960,156

2012 390 $12,692,528,436

In 2012, those seven mortgage brokerages arranged or participated in the securitization sales of 390 instruments6 that were valued at about $12.7 billion. Compared to 2010, there were significant increases in both the number of instruments (increased three times) and the dollar value of instruments (increased almost eight times).

6 An instrument is defined as a group of mortgages that are bundled into one package.

QUESTION 23 Did the brokerage make securitization sales?

Figure 61 – Brokerages that Made Securitization Sales


Yes 3 0.3% 4 0.4% 5 0.4% 33.9% 26.2% No 1,158 99.7% 1,107 99.6% 1,108 99.6% 66.1% 73.8% TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0% 100.0% 100.0%

QUESTION 23 (a) If yes, please provide the number of transactions and the dollar value of transactions.

Figure 62 – Securitization Sales (Number/Dollar Value)

Responses # Transactions $ Transactions 2010 116 $4,555,749,823 2011 334 $7,828,596,956

2012 403 $7,987,047,307

In 2012, five mortgage brokerages made the bulk of securitization sales from all respondents. They made a total of 403 transactions that were valued at about $8 billion. Compared to 2010, this represents an increase by 287 transactions (247 per cent) and $3.4 billion (75 per cent) in the value of these transactions. Further review revealed that one mortgage brokerage was responsible for 42 per cent of the increase in the dollar value of the transactions.


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Complaints and Complaint Handling (Questions 24 – 25)

The purpose of the following questions was to verify compliance with legal obligations under the MBLAA.

QUESTION 24 Is the person designated to receive complaints at the brokerage of the principal broker?

In 2012, about 90 per cent of mortgage brokerages (or 1,006) reported that the principal broker was their designated individual for receiving complaints from the public.

QUESTION 25 Total number of written complaints received by the brokerage during the reporting period:

QUESTION 25 (a) Of the total written complaints received, how many were responded to, as required by legislation?

QUESTION 25 (b) Of the total written complaints received, how many were resolved as at December 31?

Figure 63 – Number of Complaints Received by the Brokerage

Reporting Period

# Brokerages # Complaints Received Responded To Resolved Unresolved

2010 110 468 468 447 21 2011 81 208 201 195 13

2012 90 193 193 171 22

In 2012, a total of 193 complaints were received and responded to by mortgage brokerages. Of these complaints, only 88 per cent (or 171 complaints) were resolved compared to 2011, when 94 per cent of complaints were resolved. In 2012, the total number of complaints decreased by 7 per cent from 2011.

QUESTION 25 (c) Please provide the following breakdown for the complaints received

New for 2012 AIR

Figure 64 – Types of Complaints Received by the Brokerage

Complaint Category 2012

# %

Administration 103 56.9% Disclosure 35 19.3% Marketing & Sales 33 18.2% Fraud 10 5.6% TOTAL 181 100%

During 2012, mortgage brokerages reported that 57 per cent of their complaints related to the administration of mortgages, 19 per cent were about disclosure of information, and 18 per cent related to marketing and sales.


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Suitability (Questions 26 – 35)

The purpose of the following questions was to ensure the continued suitability of a mortgage brokerage for licensing purposes.

QUESTION 26 Were any E&O claims made against the brokerage or the brokerage's brokers/agents, in any Canadian jurisdiction, during the reporting period?

QUESTION 26 (a) If yes, how many were made?

QUESTION 26 (b) If so, provide a brief explanation.

Figure 65 – All E&O Insurance Claims against the Brokerage or its Brokers/Agents

Responses 2010 2011 2012 # % # % # %

Yes 18 2% 24 2% 37 3%

No 1,143 98% 1,087 98% 1,076 97%

TOTAL 1,161 100% 1,111 100% 1,113 100%

During this reporting period, 37 mortgage brokerages said they received a total of 55 E&O insurance claims. These claims represent an increase of 105 per cent in the number of brokerages that reported E&O insurance claims compared to 2010.

QUESTION 27 Were any claims against the brokerage paid by its E&O insurance carrier or bonding company, in any Canadian jurisdiction, during the reporting period?

QUESTION 27 (a) If yes, how many claims were paid out?


Figure 66 – E&O Insurance Claims against the Brokerage that were Paid by Insurers or Bonding Companies

Responses 2010 2011 2012 # % # % # %

Yes 22 2% 16 1% 11 1%

No 1,139 98% 1,095 99% 1,102 99%

TOTAL 1,161 100% 1,111 100% 1,113 100%

In 2012, eleven mortgage brokerages reported a total of nine E&O insurance claims that were paid by their E&O insurers or bonding companies. Compared to 2011, these claims represent a decrease of 31 per cent in the number of brokerages that had their E&O insurance claims paid by an insurer or bonding company.


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QUESTION 28 In any Canadian jurisdiction were any claims against the brokerage's brokers or agents paid by its E&O insurance carrier or bonding company jurisdiction, during the reportingperiod?



Figure 67 – E&O Insurance Claims against the Brokerage’s Brokers/Agents that were Paid by Insurers or Bonding Companies

Responses 2010 2011 2012 # % # % # %

Yes 18 2% 11 1% 9 1%

No 1,143 98% 1,100 99% 1,104 99%

TOTAL 1,161 100% 1,111 100% 1,113 100%

Since 2010, there has been a 50 per cent decrease in the number of brokerages that reported claims that were made against their brokers/agents and paid by their E&O insurance carrier. In 2012, a total of eight E&O insurance claims were paid out.

QUESTION 29 During the reporting period, was a complaint made against the brokerage to a regulatory body in any Canadian jurisdiction that was based, in whole or in part, on fraud, theft, deceit, misrepresentation, forgery, or similar conduct?

QUESTION 29 (a) If yes, please provide a brief explanation.

Figure 68 – Complaints about Brokerages that Were Made to Canadian Regulators

Responses 2010 2011 2012 # % # % # %

Yes 20 2% 16 1% 13 1%

No 1,141 98% 1,095 99% 1,100 99%

TOTAL 1,161 100% 1,111 100% 1,113 100%

In 2012, a total of 13 mortgage brokerages reported that they were subject to complaints for various reasons. Most of these complaints were made against individual brokers and/or agents that were employed by these mortgage brokerages. Since 2010, there has been a continuous decrease in the number of complaints about mortgage brokerages that have been made to various regulatory bodies in Canada. There is a high correlation between complaints that were previously reported to FSCO and those that were reported in the AIR.


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QUESTION 30 During the reporting period, was the brokerage fined or were any monetary penalties imposed by any Canadian financial services regulator excluding FSCO?


Figure 69 – Fines or Penalties against the Brokerage by Other Regulators

Responses 2010 2011 2012

# % # % # % Yes 1 0.1% 1 0.1% 4 0.4% No 1,160 99.9% 1,110 99.9% 1,109 99.6% TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0%

In 2012, four brokerages reported that a regulatory body other than FSCO had imposed a fine or monetary penalty against the brokerage.

QUESTION 31 During the reporting period did the brokerage have any unpaid fines/monetary penalties owing to any Canadian financial services regulator other than FSCO?


Figure 70 – Unpaid Fines or Penalties against the Brokerage by Other Regulators

Responses 2010 2011 2012

# % # % # % Yes 0 0% 2 0.2% 1 0.1% No 1,161 100% 1,109 99.8% 1,112 99.9% TOTAL 1,161 100% 1,111 100.0% 1,113 100.0%

During the reporting period, one brokerage reported that the payment of its fine remained outstanding.

QUESTION 32 During the reporting period was the brokerage fined or were any monetary penalties imposed by any provincial/federal courts?


New for 2012 AIR

Figure 71 – Fines or Penalties Imposed by Provincial/Federal Courts

Responses 2012

# % Yes 3 0.3% No 1,110 99.7% TOTAL 1,113 100.0%


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In 2012, three brokerages reported that they were fined and had subsequently paid/settled the monetary penalties that were imposed by the courts.

QUESTION 33 During the reporting period or previous years did the brokerage have any outstanding or unpaid fines/monetary penalties levied by any provincial/federal courts?


Figure 72 – Outstanding Fines or Penalties Imposed by Provincial/Federal Courts

Responses 2010 2011 2012

# % # % # % Yes 0 0% 0 0% 0 0% No 1,161 100% 1,111 100% 1,113 100% TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0%

There were no outstanding or unpaid fines/monetary penalties that were levied by any provincial/federal courts. This trend was stable over the past three years.

QUESTION 34 During the reporting period, was the brokerage subject to any charges laid under the laws of any Canadian province/ territory?


Figure 73 – Charges Laid in Canada

Responses 2010 2011 2012

# % # % # % Yes 0 0% 0 0% 0 0% No 1,161 100% 1,111 100% 1,113 100% TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0%

In 2012, none of the brokerages reported that they were subject to any charges that were laid under the laws of any Canadian province/territory. This trend was stable over the past three years.

QUESTION 35 During the reporting period were any licences the brokerage held from a regulatory body/professional organization revoked or suspended?

QUESTION 35 (a) If yes, provide a brief explanation:

Figure 74 – Revoked/Suspended Licences from Other Regulators/Professional Organizations

Responses 2010 2011 2012

# % # % # % Yes 3 0.3% 4 0.4% 3 0.3% No 1,158 99.7% 1,107 99.6% 1,110 99.7% TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0%


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In 2012, three brokerages had their licences revoked or suspended by a regulatory body or professional organization. Similar numbers were also reported in both 2010 and 2011.

Reporting Changes (Questions 36 – 38)

QUESTION 36 Did the brokerage open any offices during the reporting period?

QUESTION 36 (a) If yes, how many offices were opened?

QUESTION 36 (b) How many of the total offices opened by the brokerage were open to the public?

Figure 75 – Number of New Offices Opened by Brokerages

Responses 2010 2011 2012

# % # % # % Yes 135 12% 84 8% 99 9%

No 1,026 88% 1,027 92% 1,014 91%

TOTAL 1,161 100.0% 1,111 100.0% 1,113 100.0%

During the reporting period, 99 mortgage brokerages opened a total of 167 new offices. Of these new offices, 90 per cent (or 151 offices) were open to the public. From 2011 to 2012, the number of brokerages that opened new offices increased by 18 per cent.

QUESTION 37 Did the brokerage close any offices during the reporting period?

QUESTION 37 (a) If yes, how many offices were closed?

QUESTION 37 (b) How many of the total offices closed by the brokerage were open to the public?

This information is collected for FSCO’s internal use to verify and update licensing records.

Figure 76 – Number of Offices that were Closed by Brokerages

Responses 2010 2011 2012 # % # % # %

Yes 59 5% 62 6% 52 5%

No 1,102 95% 1,049 94% 1,061 95%

TOTAL 1,161 100% 1,111 100% 1,113 100%

In 2012, a total of 174 offices were closed by 52 mortgage brokerages. Of these offices, 96 per cent (or 167 offices) were open to the public. From 2011 to 2012, the number of brokerages that closed offices decreased by 16 per cent.


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Figure 77 – Number of Offices that were Opened and Closed by Brokerages

Responses 2010 2011 2012

# Brokerages # Offices # Brokerages #

Offices # Brokerages # Offices

# Offices Opened 135 232 84 140 99 167

# Offices Closed 59 221 62 120 52 174

QUESTION 38 Did any of the following information change during the reporting period? Did you report the changes to FSCO through Licensing Link?

The purpose of this question is to verify the accuracy of existing information that FSCO has on file for the brokerage. Under the MBLAA, mortgage brokerages are required to report the following changes to FSCO.

Figure 78 – Changes That Must be Reported to FSCO

Responses By Type of Information Changed? Reported?

# % # %Address for Service 124 11.1% 113 10.2%

Address of Principal Place of Business 133 11.9% 119 10.7%

E-mail, phone, fax 98 8.8% 85 7.6%

E&O insurance 92 8.3% 66 5.9%

Officers or Directors 57 5.1% 50 4.5%

Partners in Partnership 3 0.3% 3 0.3%

Remuneration/Payments (Questions 39 – 41)

QUESTION 39 During the reporting period, did your brokerage accept non-monetary remuneration from lenders?

Figure 79 – Brokerages that Accepted Non-Monetary Remuneration from Lenders


# % # % # % # Mortgages

$ Mortgages

Yes 260 22% 282 25% 297 27% 42% 45% No 901 78% 829 75% 816 73% 58% 55%TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

In 2012, just over a quarter of all brokerages reported that they accepted non-monetary remuneration from lenders. This included reward points, tickets for events, trips, gifts, memberships, as well as other types of incentives. In contrast to 2011, this represents an increase of five per cent in the number of brokerages that accepted non-monetary remuneration from lenders. The types of rewards that were reported in 2012 follow a similar trend to what was reported in the past.


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QUESTION 39 (a) If yes, what kind of remuneration?

Figure 80 – Types of Non-Monetary Remuneration from Lenders

Responses By Remuneration Type 2011 2012 # % # %

Points 262 23.6% 278 25.0%Event Tickets 53 4.8% 56 5.0%Trips 59 5.3% 54 4.9%Gifts 37 3.3% 46 4.0% Other 14 1.3% 14 1.3% Memberships 5 0.5% 3 0.3%

QUESTION 40 Did your brokerage have contingency commission (i.e. volume bonus) or payment arrangements with lenders?

Figure 81 – Brokerages with Contingency Commissions/Payments with Lenders


# % # % # % # Mortgages

$ Mortgages

Yes 419 36% 467 42% 486 44% 42.5% 40%

No 742 64% 644 58% 627 56% 57.5% 60%

TOTAL 1,161 100% 1,111 100% 1,113 100.0% 100% 100%

During the reporting period, 486 mortgage brokerages (or 44 per cent) had contingency commissions or payment arrangements with lenders. Since 2010, there has been a continuous increase in the number of brokerages that reported contingency commissions or payment arrangements with lenders. However, from a market share perspective, in 2012 these brokerages covered less of the market than in 2011.

QUESTION 41 Did your brokerage have tri-party compensation agreements for payments of incentives other than money, between your brokerage, broker/agents and other brokerages?

Figure 82 – Brokerages with Tri-Party Compensation Agreements for Non-Monetary Payments


# % # % # % #

Mortgages$

Mortgages

Yes 46 4% 30 3% 52 5% 15% 9%

No 1,115 96% 1,081 97% 1,061 95% 85% 91%

TOTAL 1,161 100% 1,111 100% 1,113 100% 100% 100%

In 2012, only 52 mortgage brokerages (or 5 per cent of all brokerages) had tri-party compensation agreements for payments of incentives other than money. Although the number of these brokerages increased from 2011 to 2012, from a market share perspective these brokerages covered slightly less of the market in 2012 than in 2011.


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Responses Provided by Mortgage Administrators

Administrator Information

This section provides general information about mortgage administrators.

(A) E&O Insurance Provider

Under the MBLAA, mortgage administrators who are licensed with FSCO must carry E&O insurance, or have some other form of insurance that is approved by the Superintendent.

Figure 83 – E&O Insurance by Provider

Responses2010 2011 2012

# % # % # %Provider A 38 48% 39 45% 33 33%Provider B 2 3% 8 9% 18 18%Provider C 9 11% 11 13% 10 10%Provider D 10 13% 11 13% 10 10%Provider E 0 0% 1 1% 10 10%Provider F 5 6% 6 7% 7 7Other Insurance Providers 16 19% 10 12% 13 12%

TOTAL 80 100% 86 100% 101 100%

In 2012, the top five insurers provided E&O insurance coverage for 81 per cent of all mortgage administrators. This percentage was similar to what was reported in 2011. In 2012, one mortgage administrator provided an expired E&O policy (as of December 31, 2012) with its AIR.

Although top insurance companies hold the largest share of E&O insurance policies, it appears that there is still adequate availability of E&O insurance for mortgage administrators in Ontario.

(B) Administrators also Licensed as Brokerages

This question was intended for compliance and verification purposes.

Figure 84 – Dually Licensed Mortgage Administrators

Responses 2010 2011 2012 # % # % # %

Dually Licensed 52 65% 58 67% 65 64%Administrator Licence Only 28 35% 28 33% 36 36% TOTAL 80 100% 86 100% 101 100%

In 2012, a total of 65 mortgage administrators (or 64 per cent) were also licensed as mortgage brokerages. Since 2010, there has been a continuous increase in the number of administrators who are also licensed as brokerages.


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Trust Account Information (Questions 1 – 2)

Reconciliation of trust accounts is a legislated requirement under the MBLAA. In the event of a shortfall, the administrator is required to report this information to the Superintendent.

The purpose of this group of questions was to verify compliance.

QUESTION 1 Did the administrator have a trust account(s) under the MBLAA?

QUESTION 1 (a) If no, please explain.

Figure 85 – Administrators with Trust Accounts

2010 2011 2012Yes 73 76 85No 7 10 16

Of the 16 mortgage administrators who did not have a trust account in 2012, seven indicated that they did not collect trust funds, four reported that they did not conduct any business in 2012, and five others provided responses that raised concerns about their compliance with the MBLAA.

QUESTION 1 (b) How many MBLAA trust accounts did the administrator have as of December 31?

Figure 86 – Trust Accounts Held by Administrators

Responses 2010 2011 2012

# %# of

Accounts #

Administrators %

Administrators # of

Accounts #

Administrators%

Administrators

None 7 9% 0 10 12% 0 16 16%1 59 69% 1 68 67%

2 to 25 14 16% 2 to 25 15 15%Yes 73 91% 26 to 50 2 2% 26 to 50 2 2%

51 to 75 0 0% 51 to 75 0 0%76 or more 1 1% 76 or more 0 0%

TOTAL 80 100%Total Accounts: 377

86 100%Total Accounts: 206

101 100%

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P a g e 41

In 2012, a total of 206 trust accounts were declared by 85 mortgage administrators. Of these administrators, 67 per cent reported that they only had one trust account. Since 2011, the number of administrators that declared trust account increased by 12 per cent. However, from 2011 to 2012 the total number of trust accounts decreased by almost half as much.

QUESTION 1 (c)Of the total number, how many MBLAA trust accounts did the administrator open duringthe reporting period?

Figure 87 – Number of Trust Accounts Opened in 2012

New for 2012 AIR Responses By Number of Trust Accounts

2012

# %

1 account 20 87.1%2 accounts

9 accounts

1 4.3%3 accounts 1 4.3%4 accounts 1 4.3%TOTAL 23 100%

In 2012, a total of 29 MBLAA trust accounts were opened by 23 administrators. The majority of these administrators (or 87 per cent), only opened one trust account.

QUESTION 1 (C/I) Did the administrator obtain prior written consent from the Superintendent pursuant toO. Reg. 189/08, s.34 (2)?

QUESTION 1 (C/II) If not, please explain why?

The majority of mortgage administrators reported that they had no prior written consent from the Superintendent. However, from the explanations that were provided, these administrators stated that this was because they were administering mortgages that were not located in Ontario.

New for 2012 AIRFigure 88 – Administrators that Obtained Prior

Written Consent from the Superintendent

Responses 2012 # %

Yes 3 4%

No 82 96% TOTAL 85 100%


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QUESTION 1 (d) Did the administrator reconcile all of its MBLAA trust accounts?

QUESTION 1 (d/i) If not, please explain why?

Figure 89 – Administrators that Reconciled All of their Trust Accounts

Responses 2010 2011 2012 # % # % # %

Yes 71 97% 75 99% 85 100%

No 2 3% 1 1% 0 0% TOTAL 73 100% 76 100% 85 100%

From those administrators that reported they had trust accounts, all of them stated that they had reconciled their MBLAA trust accounts. This represents an improvement from previous years.

QUESTION 2 Was there a shortfall, at any time, in any of the MBLAA trust accounts?

Figure 90 – Administrators that had Shortfalls in their Trust Accounts

Responses 2010 2011 2012

# % # % $ # %

Yes 2 3% 4 5% $98,951 4 5%

No 71 97% 72 95% 0 81 95%TOTAL 73 100% 76 100% $98,951 85 100%

In 2012, only four administrators reported that they had a shortfall in their trust accounts. Similar numbers were also reported in 2011. This raises a concern for FSCO.

QUESTION 2 (a) If yes, please provide the following information:

Figure 91 – Administrators that Corrected/Reported Shortfalls in Trust Accounts

New for 2012 AIR Responses 2012

Corrected Reported# Occurrences # Occurrences

Yes 7 22 TOTAL 7 22


Supervision of Operations (Questions 3 – 7)

QUESTION 3 Where was the administrator’s head office in Canada as of December 31?

This question was designed to help FSCO understand the geographical profile of the mortgage brokering industry. The collected information also supports FSCO’s planning of onsite examinations/inspections at mortgage brokerages.

Figure 92 – Locations of Administrators’ Head Offices in Canada

NOTE: The above numbers do not add up to 100% due to rounding.

Figure 93 – Locations of Administrators’ Head Offices by Number and Percentage


Alberta 1 1% 2 2% 3 3% 0.0% 0.3% British Columbia 5 6% 5 6% 5 5% 0.4% 4.3% Manitoba 2 3% 2 2% 2 2% 3.2% 3.2% Ontario 71 89% 76 89% 89 88% 96.3% 87.2% Quebec 1 1% 1 1% 2 2% 0.1%

5% TOTAL 80 100% 86 100% 101 100% 100.0% 100.0%

Similar to previous years, in 2012 the vast majority (or 88 per cent) of mortgage administrators’ head offices were located in Ontario. In 2012, seven administrators closed their offices in Ontario, and 20 newly licensed mortgage administrators established their head offices in Ontario.

ONTARIO

89%

BRITISH-COLUMBIA

5% ALBERTA

3% MANITOBA

2% QUEBEC

2%

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QUESTION 4 Provide the total number of offices for each Ontario region as of December 31, as applicable:

The purpose of this question is to increase FSCO’s awareness of administrators with active branch offices in Ontario.

Figure 94 – Total Number of Offices by Ontario Region

Responses 2010 2011 2012 # % # % # %

Central Ontario 72 86% 79 85% 95 86%Southwestern Ontario 6 7% 6 6% 7 6% Eastern Ontario 5 6% 7 8% 8 7% Northern Ontario 1 1% 1 1% 1 1% TOTAL 84 100% 93 100% 111 100%

Over the past three years, the geographical distribution of mortgage administrator’s offices in Ontario remained relatively consistent. In 2012, the majority of the mortgage administrator’s offices were located in central Ontario (86 per cent), while northern Ontario had the lowest amount (one per cent).

QUESTION 4 (a) List the top five locations by the number of offices for each Ontario region, as applicable.

Figure 95 – Top 5 Locations of Administrators’ Offices

Top Locations 2010 2011 2012

# of Offices % of Total Offices # of Offices % of Total Offices # of Offices % of Total

Offices Toronto (GTA) 69 82% 75 81% 92 83% Ottawa 4 5% 5 5% 6 5% Barrie 2 2% 3 3% 2 2% Waterloo 3 4% 2 2% 1 1% Other 6 7% 8 9% 10 9% TOTAL 84 100% 93 100% 111 100%

During the reporting period, 95 per cent of administrators had only one office in Ontario. The remaining five per cent of administrators had two or three offices in Ontario. Of the 111 offices, the majority (or 83 per cent) were located in Toronto (GTA). Since 2010, there has been a 33 per cent increase in the number of offices that are located in Toronto (GTA). During the same three year period, there was also a 35 per cent increase in the number of offices that are located in Ottawa.

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QUESTION 5 Did the administrator administer mortgages in other Canadian provinces/ territories?

The following questions were asked to gain a better understanding of mortgage administrators’ scope of business.

In 2012, approximately one third of mortgage administrators (or 36 per cent) conducted business in other Canadian provinces or territories. This represents a 44 per cent increase since 2010.

Figure 96 – Administrators that Conducted Business in Other Provinces/Territories

2010 2011 2012Yes 25 28 36No 55 58 65

QUESTION 5 (a) If yes, please provide the following information for each province/territory, as applicable:

Figure 97 – Top 5 Locations of Business Conducted Outside of Ontario

Alberta British Columbia Nova Scotia Quebec Manitoba2010 19 19 11 14 122011 22 20 15 14 122012 24 23 18 17 14

Consistent with previous years, the top locations where administrators conducted business outside of Ontario were: Alberta (24 administrators), British Columbia (23 administrators), and Nova Scotia (18 administrators). Since 2010, Nova Scotia has had the greatest increase in the number of mortgage administrators that conducted businesses in that province (64 per cent), followed by Alberta (26 per cent) and British Columbia (21 per cent).

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QUESTION 5 (a/i) % of # Mortgages?

QUESTION 5 (a/ii) % of $ Mortgages?

Figure 98 – Percentage of Business Conducted Outside Ontario in 2012

Canadian Province / Territory

Number of Administrators by % of Business Range Average % of Business 0% to 25% 26% to 50% 51% to 75% 76% to 100%

# Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort. # Mort. $ Mort.

Alberta 21 20 2 2 - 1 1 1 16% 18%British Columbia 18 16 3 4 2 2 - - 16% 17%Manitoba 13 11 1 1 - - - - 6% 6%New Brunswick 15 13 - 1 - - - - 5% 6%Newfoundland and Labrador 4 4 1 1 - - - - 8% 9%Northwest Territories 2 2 - - - - - - 1% 1% Nova Scotia 18 18 - - - - - - 4% 3% Nunavut 2 2 - - - - - - 3% 3%Ontario - - - - - - - - - - Prince Edward Island 7 6 - - - - - - 2% 3%Quebec 13 14 2 2 2 1 - - 18% 16%Saskatchewan 12 12 - - - - - - 4% 3%Yukon 1 1 - - - - - - 14% 11%

In 2012, five mortgage administrators had more than 50 per cent of their portfolio under administration outside of Ontario. In comparison, in 2011 this only applied to three administrators.

QUESTION 6 Please provide the following information on the administrator’s mortgage portfolio for the reporting period:

Figure 99 – Information on the Administrator’s Mortgage Portfolio

Responses 2010 2011 2012

# Mortgages

$ Mortgages

(in millions)

# Mortgages

$ Mortgages

(in millions)

# Mortgages

$ Mortgages

(in millions) Total Mortgages Under Administration 345,271 $103,326 422,299 $135,654 477,580 $158,988

Total Mortgages In Arrears 6,867 $1,991 5,957 $2,289 8,516 $2,561 Total Mortgages In Arrears Where Foreclosure/ Power of Sale Proceedings Commenced

3,881 $1,024 2,511 $993 2,348 $653

In 2012, a total of $159 billion worth of mortgages were under administration. This represents an increase of 54 per cent since 2010. During the reporting period, 17 administrators reported that they had no mortgages under administration. This represents an increase of 23 per cent since 2011. In 2012, four administrators reported that more than 30 per cent of the mortgages under their administration were in arrears.


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Administrators that reported activity in 2012 indicated that they have conducted business with a total of 5,123 investors. This represents a decrease of 19 per cent from 2011.

QUESTION 7 Did the administrator operate a Mortgage Investment Corporation7 (MIC) during the reporting period?

7 A Mortgage Investment Corporation (MIC) is an investment/lending company that is designed specifically for mortgage investing or lending in Canada. MICs are governed by the Income Tax Act. Profits generated by the MIC are distributed to its shareholders according to their proportionate share.

Figure 100 – Administrators that Operated MICs

Responses 2011 2012 # % # %

Yes 11 13% 12 12%

No 75 87% 89 88% TOTAL 86 100% 101 100%

In 2012, MICs were operated by a total of 12 administrators. This figure was similar to what was reported in 2011.

Securitization (Questions 8 – 9)

QUESTION 8 Did the administrator arrange or participate in arranging any securitization facilities?

Figure 101 – Administrators that Arranged or Participated in Securitization Facilities

2010 2011 2012No 77 82 97Yes 3 4 4

During the reporting period, the number of administrators that arranged or participated in the securitization of mortgages remained marginal (only four administrators). This trend was stable over the past three years.

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QUESTION 8 (a) If yes, please complete the following:

Figure 102 – Number and Value of Instruments for Administrators

Responses 2010 2011 2012 Number of Instruments 114 205 311Value of Instruments (in millions) $2,267 $5,398 $10,629

Since 2010, there has been a continuous and substantial increase in the number and value of instruments. In 2012, three of the four administrators that arranged or participated in the securitization of mortgages accounted for 97 per cent of the total number of instruments, and 95 per cent of the total value of theseinstruments.

QUESTION 9 Did the administrator make securitization sales?

Figure 103 – Administrators that Made Securitization Sales

Responses 2010 2011 2012 # % # % # %

Yes n/a n/a 2 2% 2 2%No n/a n/a 84 98% 99 98%TOTAL n/a n/a 86 100% 101 100%

(Responses were different in 2010.)

In 2012, two administrators made securitization sales. These were the same two administrators that madesecuritization sales in 2011.

QUESTION 9 (a) If yes, please complete the following:

Figure 104 – Number and Dollar Value of Transactions for Securitization Sales

Reporting Period # Transactions $ Transactions (in millions)

2010 68 $3,370 2011 182 $3,881

2012 139 $3,849

In 2012, two administrators made 139 securitization sales transactions that were valued at $3.8 billion. In comparison to 2011, this represents a decrease of 24 per cent in the number of transactions, but only a one per cent reduction in the total value of transactions.


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Records Information (Question 10)

The purpose of this group of questions was to verify the prompt retrieval of records to facilitate the planning of FSCO’s examination/inspection of mortgage administrators.

QUESTION 10 What format are your required records stored in?

Figure 105 – Format of Required Records

Responses 2010 2011 2012 # % # % # %

Electronic / Paper 64 80% 68 79% 73 72%Paper 9 11% 7 8% 12 12%Electronic 7 9% 11 13% 16 16%TOTAL 80 100% 86 100% 101 100%

In 2012, the vast majority (or 72 per cent) of administrators stored their required records in both electronic and paper formats. Of these administrators, 12 per cent only stored them in paper format, while 16 per cent adopted a paperless business model. This represents a significant increase (of 129 per cent) since 2010.

QUESTION 10 (a) Were the required records retained at the administrator's principal place of business in Ontario?

Figure 106 – Retention of Records at the Administrator’s Principal Place of Business

2010 2011 2012Yes 68 72 87No 12 14 14

Pursuant to section 31 (3) of Ontario Regulation 189/08, mortgage administrators are required to notify the Superintendent if their records are not retained at their principal place of business. In 2012, 86 per cent of administrators stored their records at their principal place of business in Ontario. This represents an increase of 28 per cent from 2010.

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QUESTION 10 (b) If not, was the Superintendent notified?

Of the 14 mortgage administrators that stored their records outside of their principal place of business in Ontario, only two administrators failed to notify the Superintendent, as required by the MBLAA.

Figure 107 – Was the Superintendent Notified of Any Records that Were Stored Outside the Administrator’s Principal Place of Business?

Responses 2010 2011 2012 # % # % # %

Yes 12 100% 12 86% 12 86% No 0 0% 2 14% 2 14%TOTAL 12 100% 14 100% 14 100%

QUESTION 10 (c) What is the retrieval lead time required to access your records?

The purpose of this question was to ensure that records could be promptly retrieved in the event of an audit, which is also a legislative requirement under MBLAA.

Figure 108 – Required Retrieval Lead Time to Access Records in 2012

Electronic PaperSame day 10 101-3 days 3 2Over 3 days 0 1

NOTE: One administrator that did not retain its records at its principal place of business in Ontario. They were stored in electronic format only.

For those mortgage administrators that stored their records electronically, they were all able to retrieve their records within one to three days. The one administrator that stored its records in paper format reported that it required more than three days to retrieve its records.

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Total Number of Administrators: 13


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Unimpaired Working Capital (Question 11)

QUESTION 11 Did the administrator maintain the required $25,000 of unimpaired working capital, or such other arrangement as approved by the Superintendent at all times throughout the year?

Under the MBLAA, each administrator that is licensed with FSCO must maintain $25,000 of unimpaired working capital, or another similar arrangement that is approved by the Superintendent.

Figure 109 – Maintenance of $25,000 in Unimpaired Working Capital

Responses 2010 2011 2012# % # % # %

Yes 80 100% 85 99% 99 98% No 0 0% 1 1% 2 2% TOTAL 80 100% 86 100% 101 100%

In 2012, two mortgage administrators did not meet the requirement to maintain $25,000 of unimpaired working capital at all times throughout the year, or another similar arrangement that was approved by the Superintendent.

Complaints and Complaint Handling (Questions 12 – 13)

The following group of questions verify the administrator’s compliance with the MBLAA.

QUESTION 12 Name of the person(s) designated to receive complaints for the administrator.

With one exception, all administrators identified a designated person for complaint handling in accordance with Ontario Regulation 189/08, section 26 (2).

QUESTION 13 Total number of written complaints received by the administrator.

QUESTION 13 (a) Of the total written complaints received, how many have been responded to as required by legislation?

QUESTION 13 (b) Of the total written complaints received, how many have been resolved?

Figure 110 – Complaints Handled by Administrators

Responses # Complaints Received Responded To Resolved Unresolved

2010 207 207 205 2 2011 29 29 28 1

2012 39 39 35 4


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In 2012, three mortgage administrators reported that they received a total of 39 complaints. Of these complaints, 90 per cent (or 35 complaints) were resolved by the administrators.

Suitability (Questions 14 – 21)

QUESTION 14 Were any E&O claims made against the administrator during the reporting period in any Canadian jurisdiction?

QUESTION 14 (a) If yes, how many claims?

Figure 111 – E&O Claims Made Against Administrators in Canada

Responses 2010 2011 2012 # % # % # %

Yes 2 3% 5 6% 4 4%No 78 97% 81 94% 97 96%TOTAL 80 100% 86 100% 101 100%

In 2012, four administrators reported that they had a total of six E&O insurance claims against them. Similar numbers were also reported in the past few years.

QUESTION 15 Were any claims against the administrator paid by its E&O insurance carrier or bondingcompany in any Canadian jurisdiction, during the reporting period?


QUESTION 15 (b) Provide a brief explanation:

Similar to 2011, E&O insurers did not pay any of the claims that were made against mortgage administrators in 2012.

QUESTION 16 During the reporting period was a complaint made against the administrator to a regulatory body in any Canadian jurisdiction that was based, in whole or in part, on fraud, theft, deceit, misrepresentation, forgery, or similar conduct?

QUESTION 16 (a) If yes, provide a brief explanation:

Figure 112 – Complaints Made to Other Canadian Regulators

Responses 2010 2011 2012 # % # % # %

Yes 0 0% 0 0% 0 0%No 80 100% 86 100% 101 100%TOTAL 80 100% 86 100% 101 100%

During the reporting period, no administrators reported that they had complaints filed against them with any regulators in any Canadian jurisdiction. This trend was stable over the past three years.


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QUESTION 17 During the reporting period, was the administrator fined or were any monetary penalties imposed by any Canadian financial services regulator excluding FSCO?

QUESTION 17 (a) If yes, provide a brief explanation.

Figure 113 – Fines or Penalties Imposed by Other Canadian Regulators

Responses 2010 2011 2012# % # % # %

Yes 0 0% 1 1% 2 2%No 80 100% 85 99% 99 98%TOTAL 80 100% 86 100% 101 100%

In 2012, two mortgage administrators reported that they were fined by Canadian financial services regulators other than FSCO, as a result of late filings.

QUESTION 18 During the reporting period, did the administrator have any unpaid fines/monetary penalties owing to any Canadian financial services regulator, other than FSCO?


Figure 114 – Unpaid Fines or Penalties Imposed by Other Canadian Regulators

Responses 2010 2011 2012 # % # % # %

Yes 0 0% 0 0% 0 0%No 80 100% 86 100% 101 100%TOTAL 80 100% 86 100% 101 100%

During the reporting period, there were no outstanding fines from other Canadian regulators.

QUESTION 19 During the reporting period was the administrator subject to any charges laid under the laws of any Canadian province/territory?


Figure 115 – Charges Laid Against Administrators

Responses 2010 2011 2012 # % # % # %

Yes 0 0% 0 0% 0 0%No 80 100% 86 100% 101 100%TOTAL 80 100% 86 100% 101 100%

During 2012, mortgage administrators did not have any charges laid against them under the laws of any Canadian province or territory.


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QUESTION 20 During the reporting period were any licences that the administrator held from a regulatory body/professional organization revoked or suspended?

QUESTION 20 (a) If yes, provide a brief explanation

In 2012, only one mortgage administrator reported that its licence had been suspended by a regulatory body or professional organization.

Figure 116 – Licence Suspensions for Administrators

Responses 2010 2011 2012 # % # % # %

Yes 0 0% 1 1% 1 1%No 80 100% 85 99% 100 99%TOTAL 80 100% 86 100% 101 100%

QUESTION 21 Did the administrator conduct any other business from the business premises?

QUESTION 21 (a) If yes, please describe.

Figure 117 – Administrators that Conducted Other Business from their Premises


Yes 26 32% 27 31% 30 30% 80% 66%No 54 68% 59 69% 71 70% 20% 34%TOTAL 80 100% 86 100% 101 100% 100% 100%

Similar to previous years, 30 per cent of administrators reported that they handled more than just mortgage administration activities from their business premises. Most administrators indicated that they conducted mortgage brokering from their location. Some administrators reported that they handle business activities such as lending, real estate, property management, investment, accounting and law.

Reporting Changes (Questions 22 – 24)

QUESTION 22 Did the administrator open any offices during the reporting period?

QUESTION 22 (a) If yes, how many offices were opened?

Figure 118 – New Offices Opened by Administrators

Responses 2010 2011 2012 # % # % # %

Yes 3 4% 4 5% 4 4%No 77 96% 82 95% 97 96%TOTAL 80 100% 86 100% 101 100%


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In 2012, four mortgage administrators opened a total of four new offices. This is comparable to 2011 when four administrators opened six new offices.

QUESTION 23 Did the administrator close any offices during the reporting period?

QUESTION 23 (a) If yes, how many offices were closed?

Figure 119 – Offices Closed by Administrators

Responses 2010 2011 2012 # % # % # %

Yes 0 0% 1 1% 1 1%No 80 100% 85 99% 100 99%TOTAL 80 100% 86 100% 101 100%

Similar to 2011, in 2012 a mortgage administrator closed one of its offices.

Figure 120 – Number of Opened and Closed Offices

Responses 2010 2011 2012# Offices Opened 3 6 4# Offices Closed 0 1 1

This information is collected for FSCO’s internal use to verify and update licensing records.

QUESTION 24 Did any of the following information change during the reporting period, and were the changes reported to FSCO through Licensing Link:

This information was collected to verify FSCO’s records. Reporting the following changes is a requirement under MBLAA.

Figure 121 – Information that was Changed/Reported to FSCO

Administrator Responses By Information Type

2010 2011 2012

Changed? Reported?

Changed?

Reported? Changed? Reported?

# % # % # % # % # % # %

Address for service 8 10% 8 10% 4 5% 4 5% 9 9% 8 8%Address of principal place of business 9 11% 9 11% 4 5% 4 5% 8 8% 7 7%Email, phone or fax 5 6% 5 6% 5 6% 5 6% 3 3% 3 3%

Officers or directors 13 16% 11 14% 1

4 16% 12 14% 16 16% 14 14%

Partners in partnership 0 0% 0 0% 3 3% 3 3% n/a n/a n/a n/aE&O insurance 9 11% 5 6% 9 10% 7 8% 9 9% 8 8%


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Remuneration/Payments (Questions 25 – 27)

QUESTION 25 Did the administrator accept non-monetary remuneration from another person or entity (i.e. points, trips, etc.) in connection with the administration of mortgages?

In 2012, no administrators reported that they accepted non-monetary remuneration from another person or entity. This trend was stable over the past three years.

QUESTION 26 Did the administrator have contingency commission (i.e. volume bonus) or payment arrangements with another person or entity?

Figure 122 – Administrators that had Contingency Commissions/Payment Arrangements

Responses 2010 2011 2012 # % # % # %

Yes 1 1% 1 1% 2 2%

No 79 99% 85 99% 99 98%TOTAL 80 100% 86 100% 101 100%

In 2012, two administrators reported that they had contingency commissions or payment arrangements with other persons or entities.

QUESTION 27 Provide the number of investors or lenders the administrator conducted business withduring the reporting period.

Figure 123 – Number of Investors/Lenders that Administrators Conducted Business With

Responses 2010 2011 2012 # Investors/Lenders 4,359 6,724 5,128

In 2012, mortgage administrators reported that they conducted business with 5,128 investors/lenders. In comparison to 2011, this represents a decrease of 24 per cent.

2012 annual information return mortgage brokerages and …€¦ · business and 101 mortgage...

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