SYNDICATED MORTGAGES: THE UPS AND DOWNS In 2014, the FSCO opened an investigation into syndicated mortgages linked to Fortress Real Developments; ultimately, the regulator sanctioned eight parties (four brokers and four brokerages) for their involvement selling syndicated mortgages linked to the developer According to the FSCO, the syndicated mortgage market exploded from $3.7 billion in 2014 to $6 billion in 2016 In March, the CSA proposed regulatory changes to syndicated mortgages, including removing prospectus and registration exemptions, and requiring property appraisals from an independent, qualified appraiser The same month, Ontario’s budget capped individual investments in syndicated mortgages at $60,000, a rule that’s set to go into effect in July
on all private lenders, irrespective of how clean their track records are. “That the CSA may [force] well behaved
offering memorandum for a $300,000 residential first mortgage at 65% LTV, or a 75% LTV $50,000 second mortgage?”
“Once you get one bad player, it becomes a cycle, and you have to control that. [The proposed oversight] isn’t a bad thing” Wasah Malik, King Lending Capital conventional private lenders to provide either a prospectus or an offering memorandum, or both, for simple first- and second-mortgage syndications is very troubling,” he says. “Syndication simply means more than a single investor. Can you imagine the industry fallout from a requirement to provide a prospectus or
Ultimately, syndicated mortgages carry risk, but how much does vary. According to Ron Butler of Butler Mortgage, unsophisticated investors who become involved with complex syndications are essentially clay pigeons. “There are people who are not sophisticated about mortgage lending, getting involved in
very exotic projects of multi-million-dollar high-rise condominium projects,” he says. “Up until recently – the last 10 years or so – no mortgage broker has considered that sort of syndication appropriate for unsophisticated individuals and people with no prior experience with mortgage lending.” Technology might offer a panacea. Bridge financing platform Fundscraper is seeking to reduce risk in this sector by combining smaller minimums from more investors and automating candidate suitability assessments. “The only reason we can take capital from someone is because we’ve done a suitability assessment,” says Fundscraper founder and CEO Luan Ha. “I’d say an algorithm could assess your suitability better than a human being who’s prone to errors … and all sorts of misinterpretations of data.”
www.mortgagebrokernews.ca
10-11_News Analysis-SUBBED.indd 11
11
19/04/2018 2:08:49 PM