Forming an in-house MIC was one of the more popular sessions at the recent Mortgage Summit – and the most important message brokers came away with is the need to keep those writing the deals and those approving the deals at arm’s length.
“From a legal standpoint, you must keep a clear separation between the mortgage broker and the shareholders – and especially those doing the underwriting and approving the deals,” said Barry Bernhardt, a lawyer with McLeod Law LLP and one of three panelists leading the Summit discussion. “There must be not only transparency in every deal that is brokered and approved – but the appearance of transparency.”
Veteran broker David O’Gorman, owner of MortgageLand, specializes in private lending and has a vast experience in working with syndicate lenders.
“I’ve got a syndicate I deal with and ultimately there is a manager – not a broker – that makes the financial decisions,” says O’Gorman, who agrees that there should be a committee independent within a MIC that makes the final call on all deals. “You need the (mortgage) brokers to bring the business to the MIC, but you need another manager, or arms-length committee, to determine if the deal will be financed. You’ve got to be in a situation where you are perceived to be above-board.”
The requirements of putting together an in-house MIC are considerable, especially after the introduction of the new B-20 regulations last year.
Moderator of the MIC panel at the Summit Anisa Lancione, vice-president of mortgage development with Magenta Investment, drew attention to the potential conflict of interest of mortgage brokers and “malleable and liberal underwriting standards,” as creating “a clear conflict of interest if broker owners control underwriting and a clear and significant potential for breaching management’s fiduciary responsibility to shareholders.”
That’s all the more reason to establish a cred-lending committee right from the start, argues O’Gorman.
“It’s all fun and games until somebody gets their eye poked out,” he says, posing the possibility of a disgruntled broker or shareholder making accusations of unprofessionalism or worse if there isn’t an independent body making the final decision on all deals.
“You will inevitably have people going to the principal broker for an opinion on a deal,” he says. “And the broker should provide advice. But then it should go to that committee for final approval, so that it doesn’t come back to blow up in your face.”