FSRA Private Mortgage Rules in 2026: Level 2 Licensing, Suitability, and Disclosure for Ontario Brokers
When FSRA examined private mortgage brokerage files in its 2024-25 review cycle, 100 percent of them lacked a documented suitability assessment. Not most. All of them. That single number tells you where the regulator's attention sits and what your files will be measured against. This guide covers the FSRA private mortgage suitability requirements every mortgage agent level 2 and broker needs to meet in 2026: who is licensed to touch a private file, what a defensible suitability assessment contains, which disclosure forms apply and when, and how the lender you send the deal to changes your compliance workload. Everything here is drawn from FSRA's own guidance and supervision publications, cited as we go.
Why FSRA Is Watching Private Mortgages in 2025-26
Private lending is not a niche corner of the Ontario market. According to FSRA's Mortgage Brokering Sector Supervision Plan 2025-26, Ontario licensees brokered more than 270,000 mortgages worth $158.3 billion in 2024, and private mortgages accounted for 15.8 percent of those deals by count and 12.5 percent by dollar value. Roughly one in six brokered files in this province is private.
The rate environment has eased since the 2023-24 peak. The Bank of Canada held its policy rate at 2.25 percent in July 2026, but cheaper money has not eliminated the client profiles that drive private lending: bruised credit, non-traditional income, properties banks will not touch, and borrowers who need speed. FSRA also flags rising borrower stress, noting Ontario's 90-plus day mortgage delinquency rate hit 0.27 percent in Q2 2025, up 11 basis points year over year.
Hence FSRA's stated 2025-26 priorities: continued focus on private mortgage brokering, examinations expanding from large brokerages down to mid-sized firms with 100 or more agents, and new "holistic" reviews that follow a private mortgage investment from brokering through to administration. If your book includes private deals, assume your files are in scope.
Level 2 Licensing: Who Can Touch a Private Deal
The two-tier framework that took effect on April 1, 2023 is now the steady state. The transition deadlines that dominated coverage back then are long past. What matters in 2026 is scope of practice.
What Level 2 permits that Level 1 does not
A mortgage agent level 1 can only arrange mortgages with financial institutions and lenders approved under the National Housing Act. A mortgage agent level 2 can deal with all mortgage lenders, including mortgage investment corporations, syndicates, private individuals, and other brokerages; mortgage brokers have the same full scope plus signing authority. The practical rule: if the lender is not a bank, credit union, trust company, or NHA-approved lender, a level 1 agent cannot arrange the deal. Full scope details are on FSRA's mortgage agent level 2 licensing page.
Upgrading from Level 1 to Level 2 in 2026
For an agent who wants into the private space, the current path looks like this:
- Experience: licensed as a mortgage agent level 1 for at least 12 of the last 24 months.
- Education: an approved Private Mortgages Course completed within the two years before applying. Providers include Mortgage Professionals Canada, CMBA Ontario, and REMIC.
- Process: the application runs through Licensing Link, initiated and reviewed by your principal broker, with a criminal background check.
- Cost: FSRA charges no fee to upgrade an active level 1 licence to level 2.
The gating item is usually the 12-month experience requirement, so principal brokers building a private lending desk should plan agent upgrades a year ahead, not the week a deal shows up.
The principal broker's exposure
FSRA's suitability guidance is explicit that brokerages must ensure only staff holding a mortgage agent level 2 or broker licence handle clients who need financing from lenders that are not financial institutions. If a level 1 agent works a private file and a level 2 colleague signs it off as a formality, that is a supervision failure, and supervision is precisely what examiners are testing.
Suitability Assessments: What FSRA Actually Expects on a Private File
Section 24 of Ontario Regulation 188/08 has always required brokerages to take reasonable steps to ensure any mortgage they present is suitable for the client. What changed is that FSRA's Mortgage Product Suitability Assessment guidance, effective June 19, 2024, spells out what "reasonable steps" means and how examiners will test it. For private deals, the bar is materially higher than for an A-side switch.
The core of the assessment
Strip the guidance down to what an underwriter would recognize, and a compliant private file demonstrates four things:
- Know your client. Documented employment status, income type and stability, property details, financial knowledge, objectives, risk tolerance, and any history of bankruptcy or foreclosure. For an investor client, add investment objectives, experience, and source of funds.
- Know your product. You understood the mortgage you recommended: rate, fees, term, prepayment and renewal conditions, and, for a private mortgage, the lender itself, including the private lender's identity, experience, and source of funds.
- Options assessment. A documented comparison showing why this product fit this borrower better than the alternatives considered, plus early disclosure of any incentives that could tilt your recommendation.
- Clear communication. The client was told, in plain language, why the recommendation was suitable and what else was considered, with written acknowledgement.
The private mortgage extras
On top of the general framework, the guidance sets three expectations specific to private files:
- Justification. The file must explain why a private mortgage was required: why the client did not qualify with a financial institution, NHA-approved lender, or another lower-cost option.
- Exit strategy. FSRA expects a documented, feasible, realistic plan for how the borrower gets back to traditional financing or otherwise out of private lending: credit repair milestones, a pending sale, completion of a consumer proposal, income normalization for a self-employed borrower. "Refinance later" with no supporting logic is not an exit strategy.
- Sustainability. Evidence that you assessed whether the payments are affordable for the term and that the client understands the consequences of default.
The documentation test
The guidance sets a usefully concrete standard: a third party who was never involved in the transaction should be able to pick up your file, re-perform the suitability assessment, and explain the rationale for the recommendation. Against that standard, FSRA's 2024-25 examinations found that 100 percent of reviewed private-mortgage brokerage files lacked documented suitability assessments, 73 percent had missing or inadequate risk disclosure, and 65 percent had inadequate conflict-of-interest disclosure. The work you did in your head does not count; the work in the file does.
A practical checklist for a private file in 2026:
| File component | What examiners look for |
|---|---|
| KYC record | Income docs, credit report, objectives, risk tolerance, bankruptcy or proposal history |
| Justification note | Why A-lenders and B-lenders were not viable for this borrower now |
| Options comparison | Products and lenders considered, with reasons for the recommendation |
| Exit strategy | Specific, dated, realistic path out of private financing |
| Affordability analysis | Payment sustainability over the term, consequences of default explained |
| Risk disclosure | Material risks in writing, client acknowledgement signed |
| Conflict disclosure | Relationships, incentives, and compensation disclosed early |
| Lender KYP | Who the private lender is, their experience, their source of funds |
If your client-facing framing needs support, Richview's plain-language overview of how private mortgages work in Ontario is a useful companion piece for borrowers who are new to the space.
Disclosure Requirements on Private Mortgage Deals
Disclosure on a private file runs in two directions, and FSRA's mortgage brokerage disclosure requirements page is the operative reference for both.
Borrower-side disclosure
The borrower must receive, in writing and in plain language: the brokerage's role and who it represents, the number of lenders it dealt with in the prior fiscal year, all fees and remuneration (including lender-paid compensation and referral fees), actual or perceived conflicts of interest, the material risks of the mortgage with written acknowledgement, and cost of borrowing disclosure under Ontario Regulation 191/08, with brokerage fees included in the APR.
APR is worth singling out because FSRA tested it. In a targeted review, only 35.5 percent of examined files had correct APR calculations: 28.6 percent omitted required charges and 32.4 percent included excluded costs. On a private deal, where lender and brokerage fees stack, a wrong APR is both a compliance breach and an easy examiner win. Getting the fee picture right also means knowing the market: our breakdown of private mortgage rates in Ontario covers how rates and fees typically combine on these files.
Investor and lender-side disclosure
When the lender is a private investor rather than a financial institution, the brokerage owes the lender side its own disclosure package:
- Form 1, Investor/Lender Disclosure Statement, for private lenders and syndicated mortgage investors. A licensed broker must sign it; an agent cannot. It travels with supporting documentation such as the appraisal, borrower income verification, and credit information.
- Form 1.1, the addendum required when the transaction involves a construction or development loan.
- Form 1.2, the waiver that reduces the waiting period, discussed below.
Note the structural implication: even a level 2 agent cannot complete a Form 1 file alone. Every private deal with a non-designated investor needs a broker's signature, which is another reason principal broker workflow matters.
Timing rules
Disclosures must be delivered at the earliest opportunity and no later than two business days before the transaction completes. The investor or lender can consent in writing, using Form 1.2, to shorten that to one business day. Certain sophisticated "designated class" lenders and investors under section 2 of Ontario Regulation 188/08 qualify for reduced investor-side disclosure, one reason deals funded by regulated entities move faster than deals funded by individuals. Borrower-side disclosure is never reduced.
What Examiners Are Finding, and What It Costs
The pattern across FSRA's published findings is consistent: the industry is not failing on deal quality so much as on documentation and supervision. Missing suitability records, thin risk disclosure, absent conflict disclosure, and wrong APRs are process failures, and process failures are fixable with templates and review.
The cost of not fixing them is real. Contraventions can draw administrative monetary penalties of up to $100,000 per contravention for individuals and up to $500,000 per contravention for entities, alongside licence conditions, suspension, or revocation. For a producing agent, the bigger cost is practical: a licence interruption ends your pipeline. Build the file right the first time and an examination becomes an administrative event instead of a threat.
How the Lender You Choose Changes Your Compliance Load
Here is the part of this topic almost nobody writes about: two private deals with identical borrowers can carry very different compliance workloads depending on who funds them.
Suppose a broker has a client needing a bruised-credit second mortgage in the GTA: decent equity, a consumer proposal completing in eight months, and a clean exit into a B-lender refinance. Path one is an individual private investor. The broker owes that investor a full Form 1 package with supporting documents and a broker signature, must document know-your-product diligence on the investor (identity, experience, source of funds), manages the two-business-day clock against a lender who may be slow to sign, and often inherits renewal-time friction if the investor's appetite changes.
Path two is a licensed mortgage investment corporation. The suitability assessment, borrower disclosure, and APR obligations do not change, and nothing removes the requirement to document the file properly. But the lender-side dynamics simplify: a MIC is a managed, diversified lending entity with standing underwriting criteria, consistent commitment paperwork, professional administration, and no single investor whose personal circumstances can stall a renewal. Your know-your-product file on the lender is straightforward because the lender is a licensed business rather than an individual whose source of funds you need to probe. If the structure is new to you, this primer on how a mortgage investment corporation works covers the mechanics.
What should a broker expect from a direct MIC lender? Clear lending parameters, in-house underwriting decisions rather than a committee of investors, commitment documents that look the same on every file, and predictable administration of payments and renewals. That consistency makes your FSRA file easier to build: the justification, options comparison, and exit strategy are your work, but the lender-side documentation arrives clean and repeatable. When you are ready to package a file, our private mortgage deal submission playbook for Ontario brokers walks through what to include and how to write a deal note that gets a fast answer.
FAQ: FSRA Private Mortgage Rules for Brokers
Do I need a level 2 licence to arrange a private mortgage in Ontario?
Yes, unless you hold a broker licence. Mortgage agent level 1 licensees may only arrange mortgages with financial institutions and NHA-approved lenders. Any deal funded by a MIC, syndicate, or private individual requires a mortgage agent level 2 or a mortgage broker on the file.
What must a documented suitability assessment include for a private mortgage?
Per FSRA's guidance effective June 19, 2024, the file must show know-your-client information, know-your-product diligence including the private lender, an options comparison, a written justification for using private financing, a realistic exit strategy, and an affordability analysis. The standard is that an uninvolved third party could re-perform the assessment from your file alone.
What is Form 1 and who has to sign it?
Form 1 is the Investor/Lender Disclosure Statement given to private lenders and investors in brokered transactions. It must be signed by a licensed mortgage broker, not an agent, and delivered with supporting documents such as the appraisal, income verification, and credit information at least two business days before commitment, or one day with a signed Form 1.2 waiver.
What counts as an acceptable exit strategy?
A specific, dated, realistic plan to move the borrower out of private financing: for example, refinancing to a B-lender after a consumer proposal completes, selling a property already listed, or qualifying on normalized self-employment income at renewal. A vague intention to refinance later, with no supporting facts, does not meet FSRA's expectation.
What are the penalties for non-compliance?
FSRA can impose administrative monetary penalties of up to $100,000 per contravention for individuals and up to $500,000 per contravention for entities, and can add licence conditions or pursue suspension and revocation. Examination findings can also trigger follow-up reviews of the whole brokerage.
Does using a MIC remove the need for Form 1 disclosure?
Borrower-side obligations never change, and investor-side requirements depend on the lender's status. Certain sophisticated lenders qualify as designated class under Ontario Regulation 188/08, which reduces investor-side disclosure. Dealing with a licensed corporate lender means a simpler, more repeatable lender-side file, not an exemption from suitability or borrower disclosure.
How long should private mortgage records stay examination-ready?
Record retention obligations under the MBLAA framework mean files should be complete and retrievable for at least six years. Treat every private file as one an examiner may pull, because the 2025-26 plan expands examinations to mid-sized brokerages.
Send Your Next Private File to a Lender Built for Brokers
Every requirement in this guide sits on your side of the table, but the lender you work with decides how much friction surrounds it. Richview Capital is a direct MIC lender (MIC #13171) serving Toronto, the GTA, and Ontario, with in-house underwriting and a business built on the broker channel. You deal with the people making the credit decision, and your client stays yours.
If you have a private deal that needs a straight answer, or you want to understand our lending parameters before the next file lands on your desk, connect with our team through the Richview Capital brokers page. Send us the file the way you would defend it to FSRA, and we will give you a decision you can document.
Next steps: Brokers · Submit a Deal · FAQ
Richview Capital MIC is a licensed Mortgage Investment Corporation (Mortgage Administrator License #13171). This article is educational information for Ontario mortgage brokers, not legal, financial, or tax advice. Rates, fees, LTV limits, and approvals vary by file and underwriting, and published ranges are subject to change and are not an offer of credit.
