Are syndicated mortgages sufficiently regulated?

Are syndicated mortgages sufficiently regulated?

Are syndicated mortgages sufficiently regulated? With syndicated mortgages back in the news, one veteran suggests further regulatory restrictions on these investments may be needed.

“Here is simple proposal for FSCO: put a moratorium on all syndications over $2 Million,” Ron Butler, a broker with Butler Mortgage, wrote in the comments section of MortgageBrokerNews.ca. “Just freeze this multi-million dollar sales activity today and wait until further study is finished and a total redesign of the rules around large syndication are completed.

“I think it is important for the public good and it will also protect our whole industry.”

The Financial Services Commission of Ontario (FSCO) revealed sales of syndicated mortgages for condo units in the province reached nearly $4 billion in 2014, the latest year with available numbers.

Their growing popularity has one analyst questioning the safety of these investments.

“If something goes wrong with a project, syndicated mortgage investors are subordinate to banks and other primary lenders, meaning they’re further back in line for repayment—assuming there’s enough money left over after other lenders have received their share,” senior business and finance writer Chris Sorensen wrote in MacLeans earlier this week.

And while some question whether or not syndicated mortgages are sufficiently regulated, one industry veteran who specializes in them argues they are.

“Private mortgages, syndicated or not, and rules governing disclosure, suitability, etc. are, in my opinion, all adequately addressed in Ontario via the Mortgage Brokerages, Lenders, and Administrators Act and subsequent Regulations. The Financial Services Commission of Ontario (FSCO) ensures brokerages follow these rules,” Glen May-Anderson, president of FDS Broker Services, wrote in an email to MortgageBrokerNews.ca earlier this year.

 May-Anderson also pointed to the fact that FSCO has recently addressed the regulation of syndicated investments.

“Improvements to the governance of traditional private mortgages and syndicates for development and construction mortgages were implemented by FSCO last year, with the introduction of the revised Investor/Lender Disclosure Statement for Brokered Transactions (Form 1) and the new Addendum for Construction and Development Loans (Form 1.1),” May-Anderson wrote.
19 Comments
  • Keith 2016-04-07 10:23:08 AM
    I think that if there is going to be tighter regulations it should apply to ALL syndicates - regardless of size. There is risk associated with all of them, and frankly Ron's comments seem more than just a bit self serving considering that he has his own syndicated mortgage company. Yes they are smaller mortgages, but syndication is syndication - period.
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  • Jesse D 2016-04-07 10:51:22 AM
    Mortgages in general need to be regulated better and that includes banks/CUs, both branch and road rep levels. To ask focus to be put on syndicated mortgages is self serving especially when so many are lending their own private funds out. Firms like FDS/Fortress and Landmark are properly licensed and use full disclosure but then there are other firms like the now defunct Titan who were not. At the same time, we can say the same about pretty much every industry as there are good and bad apples everywhere.
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  • Ron Butler 2016-04-07 10:54:14 AM
    Let me correct Keith, I have NO syndicated mortgage company, that is a compete fiction. Our company does private mortgages and our syndications are almost exclusively among investor family members. It is simply ridiculous to compare 4 family members providing a first mortgage on a single family detached to a second, third or fifth position mortgage providing funding for soft costs on a $70 million dollar hi-rise project.

    There are many mortgage brokers, investors and media people in Ontario concerned about very large mortgage syndications. Based on the fact they added 7 pages to the Investor Disclosure document and as recently as 4 weeks ago publicly stated they were further investigating the offering of syndicated mortgages to investors I have to believe FSCO is thinking about it as well.
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