“Over the past year, the Financial Services Commission of Ontario (FSCO) has taken considerable action in the syndicated mortgage investment (SMI) marketplace to help consumers,” FSCO wrote in a warning note, entitled Before Investing in a Syndicated Mortgage
. “While there are many legitimate SMI opportunities, FSCO warns consumers to be wary of SMIs with advertisements promoting a high return or ‘fully secured’ investment.”
The regulator considers syndicated mortgages to be high risk and it has outlined potential risks -- and steps consumers should take before investing in them.
Those risks include; no guaranteed high returns, despite promises made by syndicated mortgage providers; the fact that investors are often only paid after the lender and, if a project fails, investors may never see returns; the lack of protection insurance; and the possibility that early withdrawals may be difficult.
FSCO also outlined steps investors should take to ensure minimized risk.
Those include asking the broker offering the investment to provide a license number; inquiring about the payback plan and priority of payouts; asking the property’s value; seeking independent advice; reading and understanding all documents; inspecting the project; and ensuring full disclosure.
“Mortgage brokerages must take reasonable steps to ensure that the mortgage investment they recommend is suitable based on your needs and circumstances,” FSCO wrote. “They must also advise you of the material risks of the investment, disclose potential conflicts of interest, and provide evidence of the borrower’s ability to meet the mortgage payments.”
An image posted on FSCO’s website
To read the entire document, click here
The Financial Services Commission of Ontario is once again drawing attention to the potential pitfalls of investing in syndicated mortgages.