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Mortgage Broker News | 19 Sep 2013, 12:00 AM Agree 0
Syndicated mortgages may still be relatively unknown, but leading player Fortress Real Developments hosted an informational conference Wednesday, focused on filling in the gaps and the opportunities for brokers and investors.
  • Ron Butler | 19 Sep 2013, 10:53 AM Agree 0
    I think the last sentence in this article is very important. "careful not to marry the mortgage brokerage business with the syndicate business"

    There are many fine people involved in this venture and I know several of them personally and all have sterling reputations and tremendous backgrounds but I think it is important to understand that this is not the "mortgage business". It is perfectly reasonable to refer clients to review this offering as an investment but I for one would want the client to understand that I am not trained, educated or licensed to comment on the nature of the investment (unless you are indeed licensed as a financial planner as well as a mortgage broker).

    I for one always believe that for the sake of our E & O insurance that we must carefully delineate what our jobs and limitations are. These offerings from Fortress, as far as I know, are investments and are sold as such. Most of us are not qualified for anything other than a simple "go and have a look" referral to our clients and nothing more.
  • Vince Gaetano | 19 Sep 2013, 11:00 AM Agree 0
    I would have to agree with Ron. Anytime referral fees are 700-800 basis points for referring these type of investment instruments, one must comprehend that the risk level is heightened to the investor.
  • JERRY ROSE | 19 Sep 2013, 11:24 AM Agree 0
    I agree with Ron.The yield offered to investors plus the referral fee paid to investors and the admin. fee charged by the syndicators make this type of investment far too risky for the average investor.I would urge all mortgage brokers to be extremely careful before refering clients to these syndicators.
    If things do go wrong it will severely damage not only the reputation of the referring broker but every one in The Mortgage Broker industry.Industry.
  • Ron Butler | 19 Sep 2013, 11:35 AM Agree 0
    While I appreciate Jerry's comments I want to be clear. I was not suggesting Fortress is a risky investment, I don't know the answer to that question. I am saying I would simply tell the client to take a careful look and I am not recommending anything because I not licensed to make a recommendation.

    I would also not accept any referrals fees in a case like this, whether it was from Fortress or any other type of investment. I want to receive monies only in situations when I am covered by my E & O insurance.
  • Do your due diligence... | 19 Sep 2013, 01:14 PM Agree 0
    The Team behind Fortress:
    http://fortressrealdevelopments.com/the-team/

    Relevant OSC Proceeding:
    http://www.osc.gov.on.ca/en/Proceedings_set_20111215_phoenix-credit.htm

    And Google around about "Langston Hall"
    http://www.buzzbuzzhome.com/chat/new-home-questions-answers/1361/whats-the-deal-with-langston-hall

    Always check out the people you're dealing with.
  • Glenn May-Anderson | 19 Sep 2013, 05:10 PM Agree 0
    There are a number of things I would like to cover here, so apologies in advance for the length of this comment.

    Full disclosure: I am the President and Principal Broker for FDS Broker Services, a distributor of the Fortress Real Capital syndicated mortgage investment product. I know Mr. Rathore professionally. Fortress is the only product we distribute within our brokerage - we do not work with borrowers, but only investors wishing to investigate or participate in syndicated mortgage investments.

    First, let's address Mr. "Do your due diligence." It's always comforting to see competitor companies to Fortress post this material or throw it around as an attempt to discredit Fortress or Mr. Rathore, because it gives me the opportunity to address it head-on with facts.

    Yes, 2 of the members of the 5 man executive team at Fortress were party to a settlement with the OSC. A SETTLEMENT. No charges, no findings of guilt, simply an administrative SETTLEMENT and agreed upon statement of facts, to which our anonymous friend has so generously provided a link.

    This settlement had to do with a previous company owned by Mr. Rathore which conducted business for several years, all legitimate, with one exception, to which the Settlement refers. It had nothing to with Fortress, or real estate, or mortgages... a totally different and unrelated business

    If you read the settlement in full, you'll see that the OSC provided a full 'carve-out' and exemptions for Mr. Rathore to continue dealing in real estate, mortgages and development. The settlement, in fact, clearly excludes and also clearly gives permission for him to continue to run the Fortress business, which existed at that time.

    Mr. Rathore actually approached the OSC directly when he became aware that there might be an issue with the product he was dealing with at that time, and as part of the settlement also agreed to repay all sales commissions he garnered from that product - over $3.2 million. People doing dishonest business do not do this.

    I have found him to be nothing but transparent, forthright, and incredibly professional - so much so that I have staked my professional reputation on distributing his product.

    And, to echo what Ron said, you cannot question the integrity of the other members of the executive team, all of whom have incredible reputations in the lender, investment, and development industries. You don't attract that kind of talent to your firm if you're not doing legitimate business.

    Hopefully, this addresses the OSC issue.

    Regarding Langston Hall - One of the benefits that Fortress provides over its competition is the fact that they are an actual development company that also raises capital through their affiliated mortgage brokerage (Centro Mortgage Inc.) as opposed to competitors, who are only in the business of raising funds (and therefore have no exit strategy should something go wrong with a project). In this particular case (Langston Hall), Fortress has taken control of the project, and are in the process of working with their developer and builder partners to have it completed. In doing so, they are protecting the funds of all the individuals who participated in the syndicated mortgage. Remember, these investors are all still registered on title, so they have that security attached to their investment in the interim.

    Third, let's be clear about who investors are investing with. They are not investing in Fortress - they are lending money directly to major blue chip builders and developers.... they are the borrowers in this lender/brokered relationship.

    I'll trust my money with developers like Brad Lamb, Empire Communities, Mady Developments, Chestnut Hill Homes and Cityzen any day.

    By the way, Citzyzen just won the GLOBAL award for 'best skyscraper' of the year, for their Absolute Towers ("Marilyn Monroe) project in Mississauga.

    And these developers obviously trust Mr. Rathore and Fortress, since the developers are the ones responsible for completing the project (once it's funded) and returning capital to the investors!

    Fortress currently has over 40 projects, with great development partners; here is an example of one such project where investors exited EARLY with FULL returns:

    http://www.reuters.com/article/2013/03/18/idUSnMKW96a+38+MKW20130318

    To address the concerns posted by Ron, Vince, and Jerry - First, I completely agree with you that this is a highly specialized investment product that requires professionals who are well-versed in the regulations in order to ensure consumer protection. However, I feel current legislation and regulations within the MBLAA are sufficient for consumer protection, if implemented properly.

    Our firm conducts full up-front disclosure and follows stringent Know-Your-Client guidelines to ensure the investment is appropriate for the individual(s) applying for it (and, no, not everyone who applies is approved based on their risk tolerance).

    In addition, Fortress has an incredible underwriting department that will analyze over 600 development deals this year, yet only has 42 active projects (and 5 exited). Their Stakeholder Relations department also monitors all projects to ensure they are proceeding on-schedule and on-budget. Yes, there is risk, but it is severely mitigated by Fortress, their staff, and their incredible executive team.

    Syndicated Mortgage referrals can be executed intelligently and in a fully compliant manner from other mortgage brokerages to ours, with MINIMAL risk and no impact to the E&O policy of the referring brokerage. This simple referral program can still provide significant revenue to your brokerage minus the risks associated with co-brokering.

    Our commission structure is also different from the one Vince mentions above, due to our full-service nature, and the fact that we report the transactions on our AIR and assume all the risk on our E&O.

    As it says in the article, my goal is Education, Education, and Education. I would be happy to discuss our business model, any Fortress projects, or syndicated / private mortgages in general with anyone who would like. I would also happily arrange a tour of the Fortress offices in Richmond Hill for those wishing to learn more. Simply email me at glenn@fdsbroker.com or call me directly at 647-631-6697.
  • Aylmer | 20 Sep 2013, 06:58 AM Agree 0
    I'm a broker in the Niagara area and I personally think Glenn has it right. This article is helping bring opportunities to brokers to even out the revenue at the same time help clients win better returns on their investments with a respected group. If you had been to the event as I was you'd see the calibre of people involved on the investor side.
  • Ron Butler | 20 Sep 2013, 07:13 AM Agree 0
    I do not dispute anything Glenn has said although I will say that nobody EVER knows what will happen to their E & O situation until the claim is filed.

    I try to keep this business simple. If I syndicate a private first mortgage for a detached, subdivision, residential house for 5 investors I can understand every single thing about the file. I understand the appraisal, the covenants of the borrowers, I understand the risk tolerance of my investors and I have a team of lawyers, realtors, contractors, cleaners and even lawn care people to swing into action if the mortgage defaults and my investors need protection.

    So I do business that I intimately understand and I can exert a degree of control over. If I refer an investor to something that I cannot say I totally understand and I am not even vaguely in control of and take money to do make the referral............ well, that worries me.
  • Vince Gaetano | 20 Sep 2013, 07:47 AM Agree 0
    Alymer,

    New revenue opportunities for our industry are always welcomed but they must also be scrutinized in an effort to protect the integrity of our industry and more importantly the consumer. I have sent an email to Glen asking how the commission structure has changed since my initial presentation from Fortress. I await his reply to reassess my initial concerns.

    Frankly, consumers are considerably quicker at spending borrowed money than they are at saving their hard earned income. As a result, the OSC and FSCO place significant more weight on consumer complaints about misleading "guarantees" regards investments. When you enter the arena of peddling investments that have a higher risk then your Home Trust GIC's (available to brokers paying referral fees of approx. 20bps) be very careful. As Ron points out, "for the sake of our E & O insurance that we must carefully delineate what our jobs and limitations are".

    I believe all we are saying is be careful what you are getting into. From what I understand the referral fees are more lucrative than those offered by our mortgage lenders. With this the case, some mortgage brokers may possibly just be chasing the money and not look after the consumers best interest.

    Fortunately or unfortunately (depending on the point of view), I take a very cautious approach to any investment advise whether it be Home Trust GIC, TDMP or syndicated mortgages offered by Fortress.
  • Glenn May-Anderson | 20 Sep 2013, 08:55 AM Agree 0
    Ron - Completely agree with you on both E&O and your concerns regarding knowledge of the investment. Whenever lawyers become involved, one never knows what will happen. However, the nature of a simple referral and our business model is to mitigate that risk as much as possible.

    Regarding knowledge of the investment, you make an excellent point, and I believe Vince echoes it. You should NEVER refer your clients to ANYONE you don't know, or don't have a relationship with. Ron, if you have the time, I would be happy to sit down with you and review any of the projects Fortress has financed, take you on a tour of the Fortress offices in Richmond Hill and the FDS offices in Mississauga, and arrange meetings between you and any Fortress staff or their executive team to provide you with any information you need on how we conduct our business. Again, my goal is transparency and education.

    I used to be insurance licensed (18 years ago), and still refer clients on occasion to insurance brokers that specialize in different insurance products even though I only have a cursory knowledge of the products available today. However, I have taken the time to research their products and their companies to give me the comfort level I need to make that referral. That is what I am seeking for other mortgage brokerages in our industry - to provide education and give them that comfort level. Not everyone will achieve it with us, but I believe the product to be so strong and such a benefit to consumers that it is my mission to educate and promote it as much as I can.

    The challenge we face at FDS is that we are dealing with an established mechanism (syndicated mortgages) being used in a new manner (Fortress and their due-diligence and executive team) while being marketed to everyday retail investors. It is truly a new paradigm, giving individual investors access to an area previously under the exclusive control of the banks, and frankly one that I see evolving over the next decade into as common an investment vehicle as Mutual Funds or Segregated Funds.

    The question I have is this: If the Insurance industry can have an investment product that supplements their product offering (segregated funds), then why wouldn't mortgage brokers embrace this vehicle (especially given current market conditions and declining lender compensation) by referring to our team of specialists, while maintaining focus on their core businesses?

    Vince, thank you for your email. I have responded in kind. To my mind, our compensation model at FDS has to be considered alongside the services and value we provide to brokerages, be they marketing or event planning or sales services or the due-diligence and processing systems we have implemented to ensure client suitability and service.

    Bottom line is exactly what Vince said - don't chase money at the expense of due-diligence. There are Fortress competitors out there who look and smell good, but the minute you begin digging beneath the surface you'll find far more questions than answers. They keep me awake at night. As Jerry pointed out, there is risk to the entire industry here - something I am acutely aware of, and one of the reason 100% compliance and due-diligence is a cornerstone of our operations here at FDS.

    Glenn
  • Ron Butler | 20 Sep 2013, 09:40 AM Agree 0
    Glenn, my final comment on this subject is the phrase "new paradigm" has an entirely different meaning in the Californian language than it does in English
  • Paolo Di Petta | dipettamortgage.com | 20 Sep 2013, 09:58 AM Agree 0
    I'm with Ron Butler on this one - I don't think I'd recommend a product that I don't have complete knowledge (and to a degree, control) of.

    I've been approached by a few different syndicators, and they mostly seem to be funding properties for future developments.

    There's many more complications that can arise during a large development so I just don't feel comfortable recommending them. Dealing with potential environmental, zoning and development cost overruns, not to mention the shifting market, means there are far more moving parts than a standard 1:1 deal.

    Recovering costs from a power of sale on more basic 1:1 deal is feels safer than dealing with a potentially half-completed project (affects marketability of the equity), especially when dealing with fractional ownership (having to co-ordinate a team of stakeholder-lenders).

    My dad always told me - "plan for the worst and hope for the best". It's a risk-reward equation, and these sorts of deals are a little beyond my risk tolerance vs. what's offered in return.
  • Agree w "Do your Due Dilligence" | 20 Sep 2013, 11:58 AM Agree 0
    Regarding Fortress' management team of Mr. Rathore and Mr. Petroza, I would point out that it wasn't just the OSC who banned them for life. They are also banned for life from the Mutual Funds Dealer Association for a SEPARATE incident.

    http://www.mfda.ca/regulation/bulletins05/Bulletin0157-E.pdf
    http://www.mfda.ca/enforcement/hearings05/Order200504.pdf
  • M. Robertson | 20 Sep 2013, 01:59 PM Agree 0
    Re: "Do your Due Diligence" If you had read the full report and action you would note that the issues which Mr. Rathore and Mr. Petroza faced were due to a VOLUNTARY reporting that THEY submitted to the regulator. You would also note that it was settled and that they could still trade in Syndicated mortgages and other mortgage products. The claims also indicates that they stopped trading in the product because they had questions as to compliance and that THEY approached the regulator. They also did not contest any of the settlement terms.

    That is not the actions of criminals folks. If the regulator truly had concerns they would be in jail and banned for life from any investment products, which they are not.

    In regards to the MFDA - they are a member association, just like CAAMP.
  • Keith | 20 Sep 2013, 02:04 PM Agree 0
    Re: Do your Due Diligence - Fortress' competitors like to tout the claims made against these guys because they are trying to take some market share. The fact is that some of the most respected developers in Canada use fortress, like CityZen. They would never have associated with them if there were issues.

    People make mistakes in life, and for the most part very few of them take accountability.

    These guys made a mistake and as soon as they realized it they went to the regulator on their own. People who have no integrity don't behave in that way.

    How many mortgage brokers that have commented on here have ever voluntarily gone to the authorities and requested an audit or have voluntarily reported themselves because they were not sure that they were doing something the right way?

    Well I have worked with regulators in BC and Ontario, and when I posed the question they told me that the have NEVER had a mortgage broker voluntarily report themselves.
  • DeJong | 20 Sep 2013, 03:12 PM Agree 0
    Look, do the math here:

    They pay brokers VERY well...700-800 bps.

    They promise investors typically 8% p.a. over three years, plus a one-time bonus that often adds another 12% so you end up with 8% in yr 1, 8% in yr 2, and 20% in yr 3. Let's even it out and call it 12%.

    They have their own overhead, which includes a LOT of "perks" from what I hear. Let's call that conservatively another 2%.

    Add it up and developers are effectively paying credit card rates to sustain these payouts. Now understand this: Borrowers ONLY pay those type of rates because they are considered a SIGNIFICANT RISK by real financial institutions. That these are marketed as "safe" investments is near criminal and can ONLY happen because FSCO oversees mortgage products and is nearly useless.

    People need to think more clearly about the risks here and MAKE SURE YOUR CLIENTS UNDERSTAND THEM! No one wants a lawsuit.
  • Paolo Di Petta | dipettamortgage.com | 20 Sep 2013, 03:18 PM Agree 0
    @DeJong - great points. with 2 additions

    -only the 8%/year is "guaranteed" (usually held in trust) - the rest depends on performance

    -the banks pulled out of financing condo developments two years ago. Syndicated mortgages are stepping in to fill that void.

    Personally, I wouldn't put a dime into the GTA condo market. Everyone knows my opinion of it - it's pretty public.
  • Keith | 23 Sep 2013, 08:53 AM Agree 0
    @Paolo - You are incorrect. The banks did not pull out of financing, rather due to changes in mortgage regulations they can no longer finance to the same LTV they once did and are restricted at 65% - syndicated mortgages have stepped in to fill the gap.

    @Dejong - take some time to actually read the case files. They were not banned for life by the authorities and the "fine" was the repayment of any commissions earned - which they paid back 100%. No consumer lost any money in the transactions and THEY WENT TO THE REGULATOR and REQUESTED to be audited - not the other way around. All you need to do is actually read the entire case file, not just the parts that you think are interesting.

    As for the MFDA - by your logic any mortgage broker who does not belong to CAAMP is less ethical than one who does... yet CAAMP only has 12000 of the 20,000 licensed mortgage brokers in Canada as members.
  • Broker | 23 Sep 2013, 09:17 AM Agree 0
    One simple question has not be asked.

    Are mortgages agents who take a short course experienced enough to recommend ANY investment to their clients?

    My thought is no. When you factor the high commission there is an inducement to push people.

    Try this. If you paid an agent $500 for the "simple referral" then the commission of 700 bps on the successful completion of the project see how many agents would be promoting any products like this?

    Trying to use the mortgage rules to raise capital in this way should not be allowed. It should be not be allowed for simple investors and at the best only for accredited investors.
  • Jim | 24 Sep 2013, 09:28 AM Agree 0
    Fortress have multiple projects that seem to be in jeopardy ,just ask people who invested like me who are missing payments on multiple investment projects and give me the run around with stories of refinancing but no commitment as to when i will get paid ,also they don't keep a full interest reserve if so wheres MY payments.
    Innocent people dont settle with the OSC they would fight to have it nullified if they truly where innocent.The truth can be skewed but not hidden.
  • Paolo Di Petta | dipettamortgage.com | 24 Sep 2013, 04:24 PM Agree 0
    @Keith - that's a bit of a moot point - most builders/developers are financed to the hilt.

    and this article from last year says alot: http://mrt.gs/GSxbLC - lesser known builder are having the door shut on them by banks, and better known builders are having a tougher time than they used to.

    At the end of the day, that's the real meat of what I was referring to - these syndicated products are moving in to fill that void left by the banks.

    If they could get the rates and terms they used to, I guarantee they wouldn't be paying 8%+...
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