Broker Paul Mangion has been offering syndicated mortgages for 18 years. Despite the recent bad press about the popular investment option, he plans to continue to do so – but he believes other brokers may be less inclined.
“Some brokers will avoid them,” Mangion, a broker with the Mortgage Centre, told MortgageBrokerNews.ca.
A recent MortgageBrokerNews.ca poll found 7% of brokers who once offered syndicated mortgage no longer do. It also found that 56% never have.
However, 25% of poll takers said they currently offer syndicated mortgages and 12% said they would consider offering them in the future.
This, despite the recent negative publicity surrounding syndications.
Mortgage syndication involves individuals who lend money toward a development. Many syndicators promise fixed interest rates. However, they have found themselves in the crosshairs of analysts and journalist alike of late.
“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,” Chris Sorensen, Maclean's senior business writer wrote in a column in early April.
That same criticism was levied against Fortress Real Developments, a popular syndicated mortgage provider among brokers, in a recent Toronto Star article.
“We’ve expressed concerns about the way these investments are portrayed because we’ve seen some advertising materials that tend to portray them as very safe and very secure investments, and they’re really neither,” Neil Gross, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada), told the Star.
The focus of the Star piece was a particular Barrie development that ran into financial hardship.
“The investors were left in limbo and Fortress has had to pick up the pieces,” the article reads.
For his part, Mangion believes syndicated mortgages are properly regulated, but they aren’t properly enforced.
“The best way to do it is if FSCO required an approval process,” he said.
Mangion says he will continue to offer syndicated mortgages – though he notes the type of syndication he arranges differs from what Fortress specializes in.
“We don’t get involved in projects in the beginning; we get involved in the construction stage,” he said. “If a builder doesn’t have enough money to start construction maybe (it shouldn’t go ahead).
“Fortress gets involved in either the land acquisition or soft costs stage, which is higher risk.”
Tomorrow, Glenn May-Anderson of FDS Broker Services – which works closely with Fortress Real Development – weighs in on what he argues are factual inaccuracies in the Toronto Star and Maclean’s articles.