Michael, a mortgage broker, is also a principal shareholder in a small private lending company. He is arranging a first mortgage for his client, Ms. Davies, and proposes to place the mortgage with his own lending company. What is Michael's primary ethical and legal obligation in this scenario?

Question: Michael, a mortgage broker, is also a principal shareholder in a small private lending company. He is arranging a first mortgage for his client, Ms. Davies, and proposes to place the mortgage with his own lending company. What is Michael's primary ethical and legal obligation in this scenario?

Answer options: ✅ He must disclose his ownership interest in the lending company to Ms. Davies and recommend she seek independent legal advice, and not influence her decision.

• He must disclose his ownership interest to Ms. Davies and offer her a reduced interest rate to compensate for the conflict.
• He must avoid placing the mortgage with his own company altogether to prevent any perception of conflict.
• He only needs to disclose his ownership if Ms. Davies specifically asks about his relationship with the lender.

Correct answer: He must disclose his ownership interest in the lending company to Ms. Davies and recommend she seek independent legal advice, and not influence her decision.

Explanation: When a mortgage broker has a direct or indirect financial interest in the recommended lender, it constitutes a conflict of interest. The broker must disclose this interest to the client, recommend independent legal advice, and ensure the client's decision is free from undue influence, as per provincial Mortgage Brokerages, Lenders and Administrators Acts.