FSCO warns about unlicensed syndicated mortgages

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FSCO has issued a warning to Canadians about unlicensed syndicated mortgages.

“The Financial Services Commission of Ontario (FSCO) is warning consumers that it has received complaints about some websites promoting syndicated mortgage investments,” an official release from FSCO states. “The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.”

Syndicated mortgages are becoming increasingly popular among mortgage brokers; many of whom have added the lucrative products to expand their business offerings.

However, FSCO is warning the public to be wary of syndicated mortgage providers who use certain terms in their marketing efforts.

“These websites may refer to the investments as ‘pooled mortgage investments’ or ‘principal secured investments’,” FSCO states. “These websites, along with their online ads, may guarantee high rates of return, secured by real estate, and claim to be RRSP and LIRA eligible.”

The commission also advises purchasers of syndicated mortgages to have a legal professional look over these types of investments. 

“Consumers should also be aware that all mortgage brokerages, brokers and agents in Ontario are required to disclose the material risks of any mortgage investment to investors in writing and in plain language,” FSCO says. “Investors should ensure they receive this disclosure and should carefully review it, ideally alongside independent legal advice, before making an investment or lending decision.”
  • Jake Abramowicz on 2014-09-24 12:36:14 PM

    which websites?

  • John Bargis on 2014-09-24 1:52:40 PM

    Thank you FSCO. A much needed heads-up to the consumer and the industry.

  • Robert Gascon on 2014-09-24 2:00:41 PM

    I agree. Thank you FSCO.

  • DeJong on 2014-09-24 2:28:55 PM

    Mortgage brokers need to tread very lightly here. While the commission is very enticing (and extremely generous even by financial industry standards), remember that most of us are not licensed to give investment advice. The third-party nature of the agreement with these syndicated mortgage means that if ever something goes wrong and the client loses money, it will be the mortgage broker who gets sued if the product was misrepresented, not the company.

    This is important since there are already certain products from very well known companies that are delinquent where investors have not seen interest payment in almost two years. You don't want that to be one of your clients! I expect there will be lawsuits.

    Here's the bottom line: There is nothing wrong with these investments. Just make sure you cover yourself by explain the risks involved....and there are plenty. There's a rule in finance that the risk will determine the interest rate. These pay in the 8-12% range annually. Today, you only see those types of interest rates on the junkiest of junk bonds. Telling people that these are low risk will absolutely set you up for future litigation if things sour. Represent them accurately! That's what FSCO is saying here.

  • Ron Butler on 2014-09-24 2:53:15 PM

    I am with John and Bob, thank you FSCO.

    I don't think a mortgage broker should be allowed to accept a referral fee to steer investor money to a another mortgage broker. That practise should be made illegal, plain and simple. By the way, many of these so called investments charge the borrower 19%, the worst junk bonds look good by comparison.

    IMBA and CAAMP need to address this serious situation, these syndicators will attract massive negative media attention when these schemes collapse and all mortgage brokers will feel the heat. We as mortgage brokers need to get out in front of this and our National and Provincial Associations should get involved. Trouble is on the horizon; these syndications of huge, speculative "future development" mortgages need to be stopped.

  • John Bargis on 2014-09-24 3:00:01 PM

    As per Ron's comment, unfortunately this will likely get very ugly for the broker community when it's all said and done.

  • Bonzo Dogface on 2014-09-24 3:56:45 PM

    I think the websites they are talking about are www.titansinv.com and www.thewkfg.com about the "pooled" thing. I know I have seen lots of other websites marketing these products by unlicensed people.

  • Glenn May-Anderson on 2014-09-24 6:59:42 PM

    First and foremost, I want to also commend FSCO for issuing the public bulletin referred to in this article, back on June 16th of this year (not sure why it took CMP 3 months to notice). As I said back at that time, I am fully supportive of the regulator’s efforts, and am glad they are turning a more watchful eye on to this product, as I have recommended they do on other occasions in the interest of better consumer protection.

    Second, I have a question for Ron: If you were approached by an individual client who applied for a mortgage and required a second mortgage, would you charge them a broker fee for that second mortgage? Also, would any investor you placed in that deal charge a lender fee? Finally, if that investor was brought to you by another brokerage (either by referral or co-brokering), are you suggesting you would not share any of that broker fee with the referring broker/brokerage? Because that is exactly the situation we are dealing with in terms of syndicated mortgage investors being referred to our company.

    Many of the comments I see here, and many of the discussions I have had with others in this industry, show a major lack of understanding of the fundamentals at play when it comes to development financing in general, and raising equity via syndicated mortgage loans for development financing specifically.

    For example, Ron states that “many of these so-called investments charge the borrower 19%.” Let’s deconstruct that statement. First, I don’t agree that 19% is the average cost to developers for this money (it’s at least 4% lower or more, depending on the term). However, let’s work with the number Ron states.

    Therefore, we are talking about 20% of the overall capital stack in a deal costing 19%. The average profitability margin on developments (and I am being extremely general here) is around 25%. Using standard Cost of Borrowing calculations, if the total amount borrowed is 85% (15% existing developer equity, 65% construction financing loan, and 20% in syndicated mortgage equity), then we are talking about 76.5% of the borrowed money costing about 5% (per today’s construction financing rates) and 23.5% of the borrowed money costing 19%.

    That’s a total cost of borrowing of around 8.3%. So, if you are a developer with $35 million in capital, would you like to invest that in a single tower that costs $100 million to build, and make a $25 million profit, or would you like to split that into $15 million for two different projects, retain $5 million, and make a 21.7% profit on two $100 million towers.

    Which is more profit, $25 million, or $43.4 million? And let's not forget that with the second number, you've retained $5 million in capital in order to make that amount. You really walk away with $48.4 million. With the second scenario, it has cost you net $1.6 million extra interest on total costs of $200 million to almost double your profits with the same amount of capital. Meaning it really cost you an additional 0.8% on your overall cost of borrowing to double your money.

    Does this money cost a lot because it is only for developers that can’t get financing anywhere else? Absolutely not. Cityzen, Fernbrook, Empire Communities, Cachet Homes, Brad Lamb, Averton Homes – These are well-established developers from across the country. They use Fortress Real Capital because it is a cost-effective way to increase their profits by leveraging their existing capital, per the example above.

    In other words, there is a market in the community of successful developers for what Fortress does.

    While I have had spirited discussions and disagreements with Ron and others about the topic of syndicated mortgages in general, and about Fortress Real Developments in particular, I have never once been invited to sit down by any of our detractors and asked to “lift the veil” or explain, in detail, how this all works, or address their objections.

    As an offer to any critics, cynics, or those wishing to learn more, please consider this an open invitation to meet with me personally to answer your questions, discuss your concerns, and correct the misconceptions that continue to be repeated within this industry about syndicated mortgages in general, or Fortress Real Developments in particular. I am happy to take time out of my schedule to travel anywhere and to anyone’s office in order to do so.

    My task is education. My commitment is transparency. My goal is a broader understanding within our industry of this viable product, in a time when diversification is becoming key to survival in our industry. I don’t have a problem with people having differences of opinion regarding how this product is being distributed, but let’s have a discussion based in fact, and not on incorrect suppositions, beliefs, or outright falsehoods.

    I would suggest anyone who believes what we at FDS or Fortress are doing is not 100% above-board or is "a scheme that will collapse" to visit this page and download the report referenced within: http://fortressrealdevelopments.com/news/fortress-strategic-outlook-corporate-report/

    You don't get Scotiabank as a construction financing partner, or have the Bank of Canada request meetings with you to better understand the real estate market, or get Deloitte to provide audited certification of your returns unless you are a legitimate enterprise.

  • Ron Butler on 2014-09-24 7:39:43 PM

    Glenn, the founders of Fortress have a lifetime ban from the Mutual Fund industry, that speaks for itself. Bernie Madoff was the Chairman of the NASDEQ so I don't care about how many B of C meetings you are having and ENRON's Chartered Accountants said they were perfect till the week they shut down

    I do not need any veil lifted because common sense and logic are my keys to the truth and 8.5% interest rates don't make any sense on complicated developmental financing. By the way what happened to the money that formed the difference between the 8.50% and the 19.00%? When I can do plain vanilla, single family house mortgages on 75% LTV Crosstown appraisals and yield 10% for my investors, why would anyone do such complex deals for 8.50%

    If it takes all those paragraphs of horse droppings you just wrote to make it sound like paying 19% interest is a brilliant business plan for the borrower then I have a bridge in Brooklyn for you to look at buying .......... oh wait............. FDS is already syndicating the financing on that bridge.

    Honestly, do all the financing you want, bring in all the money you can; just stop doing it as mortgage broker, go out and get a limited market dealer license and be regulated by Securities, form a MIC and do it that way and for God's sake stop soliciting other mortgage brokers to rope in investors by paying referral fees five times the size of what lenders pay us to actually originate mortgages.

  • DeJong on 2014-09-24 9:04:08 PM

    @Ron

    Don't forget the ban from the OSC and multi million dollar fine. That's two strikes against both the CEO and COO.

    Maybe they've turned over a new leaf? I won't judge, but the facts are the facts: They have a long history of NOT serving investor interests.

    Fortress likes to brag about their relationship with "blue chip" developers. Two of my good friends are risk managers at major banks. Their take: If a developer is in fact "blue chip", they would be dealing with a bank.

    @Glenn, one thing I would like to understand is where the money comes from to pay investors their annual interest during the period where developers are getting presales lined up and looking for construction financing? There's no cash flow coming in, so how are they making substantial interest payments?

    Also, I've repeatedly heard your products described as "insured and bonded" and marketed as very safe. Yet you have some projects where investors have not seen interest payments in 18 months and there is now a convoluted process in place to try to get investor money back (Langston Hall 2, for example). If these projects are "insured", why is this an issue at all? Perhaps I'm not understanding what that means. Though it is telling that this product was marketed to a direct family member of mine as being "double insured" and "impossible to lose money on". I TREMENDOUSLY resent that line of marketing to unsophisticated investors. It's borderline criminal. Maybe that doesn't reflect on the company, but rather a rogue salesperson chasing a commission, but I think it underlines exactly the issues FSCO is raising.

  • Cory on 2014-09-24 9:47:29 PM

    Very well said Glenn!

    It's funny when you read the FSCO warning that nobody seemed to comment on the fact it stated " some websites promoting syndicated mortgage investments,” an official release from FSCO states. “The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.”

    The key to this is "SOME WEBSITES promoting these products are unlicensed" What about a company like Fortress that can only be sold through a licensed Mortgage Agent and submitted to a Mortgage Broker that only deals in one Syndicate Mortgage product? How is this riskier than a Mutual Fund sales person selling 10 different companies funds, loading the clients up on DSC fees for 7 years, more than likely not even knowing the top 10 holdings of any of these funds and also likely not knowing the fund managers name or track record. How about asking your advisor that? Does a Mutual fund salesperson sits you down with a lawyer and have him explain in great detail all risks and rewards, LTV of projects, timelines etc.. 95% of people have no clue what they are invested in.

    I'm also sure most of you know that when you do decide to proceed with a syndicate mortgage investment with Fortress that you go through forms like a FSCO form detailing all fee's paid out by the developer, risks once again, any type of conflict of interest.

    Dejong and Ron, like Glenn said, it's about being educated, it certainly looks like you both could use some and I highly encourage you to sit down with Glenn and see if he can enlighten you.

    How many of you have sat down to do the paperwork for your own residential mortgage on your home and had the Mortgage agent skim through the 30 pages as quick as possible, explain virtually nothing except the rate and term and then ask you if you want to buy the mortgage insurance? I didn't know they held a life License yet they can offer you the worst kind of declining Life Insurance known to man. But a educated, Mortgage Licensed Professional who specializes in one companies products and nothing else, somehow shouldn't be able to deal in syndicate Mortgages? Yes, makes a lot of sense.

    In the future Gents, you should really know what you are talking about before you comment because it just comes off as uneducated. You can't paint every syndicate with the same brush, just as you can't paint every Mutual Fund, Stock or Lender with the same brush. Some ruin the reputation of the industry while others just keep doing things the right way and don't bother looking back or caring what the nay sayers say. You will never make everyone happy and you will always find a skeptic. I have been around long enough to see projects from start to finish and seeing clients get their principal returned. That is the proof in the pudding!

    Stick to your residential and commercial mortgages and leave the syndicate mortgages to those who specialize in them. Whether you want to admit it or not, every type of mortgage is an investment. The FSCO says you need a mortgage license to offer a syndicate mortgage to a client as part of a diversified portfolio. It's their rules, we are just abiding by them.

  • DeJong on 2014-09-24 9:55:31 PM

    @Cory

    As I said above, " There is nothing wrong with these investments..."

    They can be beneficial as part of a balanced portfolio. My issue remains how they are marketed. With that, I'll repost part of my previous comment since you seemed to have missed my main questions/concerns and simply suggested that I "get educated". That's what I'm trying to do:

    ...one thing I would like to understand is where the money comes from to pay investors their annual interest during the period where developers are getting presales lined up and looking for construction financing? There's no cash flow coming in, so how are they making substantial interest payments?

    Also, I've repeatedly heard your products described as "insured and bonded" and marketed as very safe. Yet you have some projects where investors have not seen interest payments in 18 months and there is now a convoluted process in place to try to get investor money back (Langston Hall 2, for example). If these projects are "insured", why is this an issue at all? Perhaps I'm not understanding what that means. Though it is telling that this product was marketed to a direct family member of mine as being "double insured" and "impossible to lose money on". I TREMENDOUSLY resent that line of marketing to unsophisticated investors. It's borderline criminal. Maybe that doesn't reflect on the company, but rather a rogue salesperson chasing a commission, but I think it underlines exactly the issues FSCO is raising.

  • John Bargis on 2014-09-24 10:08:50 PM

    Cory...Perhaps you should read FSCO's comments a little more carefully as they relate to the warning on these types of investments.

    Ron is spot on in his assessment and you really should get a much better understanding of the risks associated to investors with these large projects that are very market sensitive. I can assure you, large reputable builders do and have gone bankrupt.

  • Ron Butler on 2014-09-24 10:20:32 PM

    @ Cory who fears to use his full name, I syndicate mortgages every week but I syndicate 2 or 3 or 5 people to do one first mortgage on one plain vanilla, single family detached house on a one year term at 80% LTV off a Crosstown appraisal and yield those investors a 10%. Simple, thoroughly disclosed and utterly understandable. I do not require one moment of education about an 8.5% yield on a highly complex investment where the borrower is paying 19% and the "roping agent" is collecting an 8% "referral fee" I don't need to ever learn about that.

    I am sure some projects do pay-out and do return their capital, that's great: so just do it as a limited market dealer, if it is so fantastic it should sell itself. Let's take these complex developmental products out of the mortgage business and put it with securities where they belongs. Let's just keep marketing the simple, existing residential property syndicated mortgages that have worked so well for the last 5 decades.

  • Ross Kay on 2014-09-25 8:43:15 AM

    Syndicated Mortgages are only Little to Non-risk if they are backed by existing built single family homes with Updated Signed Appraised Valuations (at the time the syndication enrolls the individual property) that allow a portfolio wide LTV of 75% or less, in 2014.

    LTVs CANNOT be based on TeraNet-National Bank HPI or CREA Average Selling Prices as these measures provide a FALSE MVA value for homes.

    A Key partner for any MB who is working in the syndicated space at all, is their own highly trusted and experience AIC appraiser who is willing to put their valuations in writing and signed.

  • Mark Moreau on 2014-09-25 9:16:33 AM

    I think there are a few fundamental common-sense questions that need be asked:

    Q1) Do commercial developments ever fail? Answer - Yes.
    Anyone lending in 1980 or 1990 know that the market can turn around significantly on a moments notice. In 1980, the interest rates jumped 10-12% and virtually all construction came to a halt and R/E values plummeted. In 1990, the market did a similar thing and although the rate increases were more "reasonable". The effect in both was that several developers went broke and a number of both condo and commercial projects went belly-up despite the fact the financing (even bank financing) was in place prior. In some parts of Toronto R/E values dropped 50% and took years to recover. In fact there were a number of developments in downtown Toronto that were never revitalized for nearly 20 years. Investing in a development is anything but "safe" and there are never any guarantees they'll be successful. Even a shrewd developer can get caught by circumstances.

    Q2) Is the end product being sold an investment product or a mortgage product? Answer (in my opinion) - Investment.
    How many of our broker colleagues hold a CSC and can not only understand the OSC rules but effectively explain them to their clients? Very few I suspect. In some of these situations the broker may be both referring their "investor" client while doing an equity take-out to create the investment cash. That's at least flirting with OSC rules if not crossing the line entirely…And where is comes to consumer investor protection, the OSC is pretty humourless.

    Q3) If the returns on this type of lending is completely "Safe", "Insured" and generates double digit returns, then why aren't the banks all over this?
    Answer - Things are not as they appear. Bank's are very VERY good at identifying opportunities to generate high revenue particularly if that revenue is low risk (they have shareholders to consider). The fact is, they have very strict policies on lending in commercial developments because they can and do fail. Even when they do take the risk, their returns are more in the neighbourhood of 3-5% including fees and those risks are generally only taken with true "blue chip" developers. I'm not saying circumstances don't result in good developers not being able to obtain bank financing but, one has to ask the question what do the banks see that perhaps syndicated mortgage poolers either don't see or gloss-over because the revenue is so high.

    Q4) What caused the 2007/2008 Credit Crash? Answer - Greed. To my mind, these types of syndications are a somewhat small step away from the pooling of investor funds by lenders and investment firms into the securities markets through MBS etc. Similarly, the OSC had to implement new rules back in the '90's when Mutual Fund sales people began chasing front and back-end commissions rather than doing the "right" thing for their customers. That resulted in many Financial Planners losing their licenses and much higher education and compliance requirements.
    Bottom line? When the motivation to move any client into any product (mortgage, investment, insurance etc) is driven more by the potential commissions earned rather than by good advice, we're all in trouble I think.

    All that said, I do think there are ways to serve this market but personally, I believe there needs to be scrutiny by all the regulators (FSCO, OSC etc) to protect both the individual investors as well as our brokers/agents.

    More-over, I wonder if there shouldn't be a regulation that either all brokers/agents involved in these types of investments be required to hold a CSC before they're allowed to be involved in these transactions so that they can not only understand all the risks but can explain them fully to their clients…
    OR…
    Require brokers to refer these clients first to an licensed independent investment professional to ensure those clients know what they're getting into before any referral to a large syndicator can be performed.

  • Mike Parker on 2014-09-25 10:44:54 AM

    I agree with FSCO’s alert as they aim to protect the investing public.

    Generally speaking I believe that syndicated mortgages can be a great alternative to traditional investments. I also believe they can be a good financing vehicle for real estate developers.

    As a licensed Mortgage Broker, and Exempt Market Dealing Representative, I feel what may not be being addressed properly by "Joe/Jill Agent" is in depth client suitability through KYP and KYC. I don’t feel there is enough emphasis being put on confirming appropriate investment recommendations. Items such as investment over concentration may not be reviewed properly with clients. With an exempt market security there are over concentration limits and the OSC will monitor - it is just one of the factors that must be considered when offering an appropriate trade for an investor.

    Regardless of the current regulations in Ontario, I believe licensed mortgage professionals need to consider real estate development syndicate mortgages as a security and not paint them with the same brush as a private residential 1st,2nd,3rd mortgage investment on a single family home in an appreciating neighbourhood.

  • Ron Butler on 2014-09-25 11:01:38 AM

    @ Mike, you a limited market dealing rep, you are who should be marketing these products, you are properly trained, correctly registered and you have the right insurance. You are who I want to see dealing in this product.

  • Cory on 2014-09-25 12:14:58 PM

    @ Ron

    Clearly their is no use arguing with you. You have it all figured out and all of the education you need. You stick to your plain "Vanilla" crosstown syndicates with crosstown appraisals and 80% LTV. I'm sure nothing has EVER gone wrong in a small syndicate ever. I'm sure the people with the bad credit, bad beacon scores or too much debt are a very good risk every single time. I'm very sure that these work out virtually most of the time, what I don't believe is that if you have been doing this for what sounds like a substantial amount of time, that you have never had one single problem or hiccup. Also, please let us know what fee you include in this type of syndicate for setting it up? I'm sure you make a nice $ at the end of the day for helping those people who can't get a conventional mortgage.

    Joe White from Remic spoke at a Fortress event yesterday, he wrote the Mortgage Course and is currently offering courses for Syndicate Mortgages to so agents can have designations if they so choose. You would really have to think he would do his due diligence before he would risk his reputation at speaking at such an event. You would think the bank of Canada would due some homework also before sitting down with the executive team at Fortress and asking for their input on markets throughout Canada.

    You are right, nothing is guaranteed and anything can happen and major developers can and have failed. You can't sit their and tell me that none of your Plain Vanilla deals can ever fail because otherwise you would be able to use the word Guarantee. You can't and neither can I. The difference is, what plan do you have in place if things do go south for your clients? One would have to think that since the LTV is at 80%, the house would be sold and clients money we be recouped. Could be a bit of a process but still a great safety net assuming appraisal and market value are within line which we know can sometimes not be the case. Fortress has had to step in a few times and take over a project or bring in a new developer to see the project to the end. Clients have not lost $1 of their money nor will they. Why? Because they are prepared to do this no matter what the situation to ensure their investors don't loose $1 of money.It's a good feeling to know that some people are ethical and will do the right thing no matter what the cost. I have seen it and I have the utmost confidence and trust in them. Nothing in real estate like this runs smoothly 100% of the time and delays will always happen. A plan just has to be in place for when they do. Fortress has one.

    Those of you who keep saying this should be a LMD product are so far from the truth, it is painful. I am LMD licensed and know from experience nothing is similar. A syndicate Mortgage gives you direct title, a fixed rate of return and a defined exit term. Many LMD products are LP's which have no timeline (could be invested for 15 years)and have tax deductions for 5 years. Some have mortgage products or MIC's that generally have no security and have accreditation rules. Secondly, being properly trained is up to the agent. Most of these EMD's don't do any significant amounts of training and many agents are out there just slogging what product pays the most. Some agents are very well trained and very knowledgeable as well.

    You have to be licensed and have to complete a course to offer a syndicate mortgage to a client. It is no different than selling a mutual fund, seg fund or MIC. All require you to have a different license and expect you to be educated and know the ins and the outs of the products you are recommending. We are expected to take continuing education to keep on top of the learning curve yet we all know people in the business who do not. It's up to us to know our products and give proper recommendations to clients.

  • Ron Butler on 2014-09-25 12:29:59 PM

    Cory, so either you work for FDS or you like collecting the 8.00% "roper" fee (I will use grifter terminology because it seems appropriate), it does not matter to me because any program that involves businesses paying 19.00% interest rates on "developments" is fatally flawed.

  • Cory on 2014-09-25 1:44:48 PM

    Vanilla, you didn't answer the question on what your fee is on setting up your small crosstown syndicates? Please do answer that since you seem very caught up in the commission structures and nothing else. What is your "roper" fee?

    http://www.themortgagesummit.com/speakers/11-speakers/183-ron-butler

    So I take it you saw Fortress and FDS at the mortgage summit and didn't like what you saw? The last line of your Bio is very fitting..

  • DeJong on 2014-09-25 1:54:45 PM

    @Cory

    No need for that. Ad hominem is the domain of the defeated.

    I've posted a couple questions that remain unanswered from the apologists. Would appreciate your insight.

  • Paul Therien - CENTUM on 2014-09-25 2:21:58 PM

    There is a lot of commentary about this product here that I think is to a large degree missing the point of the regulatory notice that was issued in June. Specifically FSCO is not disparaging syndicated mortgages, they are clearly and concisely stating that there are parties in the province of Ontario that are selling, or advertising, these products who are not licensed to do business in Ontario. Their warning is clear: Consumers need to ensure that they have full disclosure when making ANY investment, and they need to deal with parties who are licensed to do business in the province.

    As most of you know CENTUM has partnered with FDS Broker Services and we stand by that partnership. Let me tell you why. First and foremost, for a broker to directly sell an investment to a customer where they earn a commission on the sale of that product, and where they are also conducting the mortgage transaction and earning a commission from that transaction, is a potential conflict of interest. The referral program provided by FDS Broker Services, simply put, allows mortgage brokers who wish to engage in selling this product, and opportunity to conduct it as an arm’s length transaction. The client is dealing with a neutral third party who best interest is in protecting the client against harm. It is also why FDS recommends that all clients obtain independent legal advice, to ensure that they fully understand the product and the associated risks.

    Now, about Fortress Real Capital. Yes, there was an instance that occurred where the principles were fined, and yes the OSC fined them. I would like to point out something however that was pointed out to me by CENTUM’s legal counsel when we started to consider this partnership. Specifically that the investigation occurred because the principles requested an audit of their business as they had some questions and they wanted to ensure that they were effectively addressing them. The result of the audit was that there were some issues with how the funds were being managed, however it was not deemed to be criminal activity by the authorities. There was a fine levied, and it was paid in full immediately and they agreed to accept the ban on selling mutual funds. It should be pointed out as well that not one single person lost a penny in all of this, and if you actually read the case file on the matter the regulators that did the review found the parties to be fully co-operative. The regulators actually recommended that they still have the ability and opportunity to sell syndicated mortgages, etc.

    Yes, they were only sanctioned by the Mutual Fund association, and given the staggering losses to consumers in the mutual fund industry… their customers – who did not lose any money – actually came out better than most of us who had mutual funds and did not fare so well. IN fact, it is estimated that with most mutual funds you actually come out further behind due to the fees that you pay over the term of the fund, many of which you do not pay until you cash them out.

    This is clearly a situation where it is important to do full investigative research prior to painting such broad brush strokes. I for one am more than happy to take our legal counsels advice in this matter as opposed to (and I quote the lawyer that said it to me) “the sensationalized rhetoric happening in the broker industry”.

    Now let’s go back to them providing syndicated mortgages. They are fully licensed and they have been audited by more than one regulatory body – without any issues. Their partnership with blue chip developers is because there is a need. Banks will not finance construction to 85% anymore, they will only go to 65% because of federal regulatory restrictions that were put in place. For any developer to suddenly have to come up with an additional 20% is prohibitive, and as a result Fortress has filled an niche in the marketplace. It should also be noted that Fortress has very strong relationships with most of the big banks in this country – institutions that are well known for their conservative business practices and strict audit and compliance processes.

    I could end up being wrong in all of this, but I am willing to hedge against the advice of lawyers who have done their due diligence.

    This product may not be for everyone, but that does not mean that it is a bad product. With ANY investment it is fundamentally important that the consumer make their decision based on full disclosure and only after they have determined their tolerance for risk. No investment is 100% guaranteed – not even buying a house. Full disclosure, independent legal advice, and doing some investigative work should be standard when considering making any large investment that has risk associated with it – no matter how great – or slight – that risk may be.

    Finally Ron – I have a great amount of respect for you. That being said, and with the utmost respect… I would much rather invest with a large syndicated mortgage company that has a proven track record, has regularly audited processes, regulatory oversight, and independently audited financial statements that are publicly available and filed with the regulator then deal with an independent broker who sells them as you have described.

  • Glenn May-Anderson on 2014-09-25 2:22:37 PM

    No need for personal insults here. Ron is perfectly entitled to his opinion, and he and I agree to disagree. He is passionate about this industry and has every right to speak his mind. I disagree with him about my business, and I disagree with his business model for mortgages, but that's my opinion, not anything personal towards him. Let's all keep it civil, please.

    As offered above, I am happy to answer any questions and even meet with anyone who has questions or concerns. My email is glenn@fdsbroker.com.

    Suffice it to say there are still major inaccuracies with some statements made by others, and some answers are far more detailed than this space can contain. I would rather meet with people face-to-face to discuss.

    DeJong, please email me and I will happily arrange a time to come to your office, meet with you, and discuss all your concerns.

  • Glenn May-Anderson on 2014-09-25 2:30:59 PM

    To all who feel that there should be more specialized knowledge and better investor protection regarding syndicated mortgage investments for development financing, I couldn't agree with you more.

    Which is why there will be a major announcement in this regard very soon which, I believe, should address most of the concerns mentioned in this thread.

  • Cory on 2014-09-25 2:43:14 PM

    @ Dejong. I agree and think it is best to get Glenn to answer any and all of your concerns. He will get you the information you deserve.

    @Paul and Glenn.. Thank you for your very well written comments. I couldn't agree more.

    @ Ron. I apologize for the "Vanilla" comment. I get very frustrated with people who paint products grouped within the same sector with the same brush. It doesn't mean you aren't entitled to your opinion. I don't agree with it but life would be very boring if we all agreed on everything. I'm sure you have your clients best interest at heart and that is the most important thing a client can ask from a mortgage agent/broker. I have the same interests at heart for my clients and can sleep comfortably at night knowing this.

  • Cory on 2014-09-25 2:43:34 PM

    @ Dejong. I agree and think it is best to get Glenn to answer any and all of your concerns. He will get you the information you deserve.

    @Paul and Glenn.. Thank you for your very well written comments. I couldn't agree more.

    @ Ron. I apologize for the "Vanilla" comment. I get very frustrated with people who paint products grouped within the same sector with the same brush. It doesn't mean you aren't entitled to your opinion. I don't agree with it but life would be very boring if we all agreed on everything. I'm sure you have your clients best interest at heart and that is the most important thing a client can ask from a mortgage agent/broker. I have the same interests at heart for my clients and can sleep comfortably at night knowing this.

  • Ron Butler on 2014-09-25 2:47:12 PM

    Paul, with equal respect; their are hundreds of mortgage brokers in Ontario and you know many of them personally, who have been arranging small syndications of two to ten individuals to provide private mortgages on simple residential properties for decades.

    These mortgage brokers are not "selling" anything, they are not paying referral fees for investment funds they are simply brokering mortgages between borrowers and private lenders. None of them have the biggest booths at industry meetings, none of the are sponsoring every industry event like they have an infinite source of funds. These men and women have the upmost integrity, skill and honesty; more to the point, none of those folks have been sanctioned by any regulator let alone two, no matter how good the back story about the sanctions is.

    I know where I would invest my money.

  • Paul Therien - CENTUM on 2014-09-25 3:54:09 PM

    Ron, No broker is going to broker a deal, regardless of the deal, without asking for a commission. We all know this, and there is nothing wrong with that. It is how we all earn a living. My comment, or questions, was quite clear. Broker obtains mortgage for client. Broker takes money advanced from that mortgage and uses it to invest in a mortgage investment, that said broker manages. To me there is a POTENTIAL conflict of interest. That is the specific advice from our solicitors, and therefore we chose to deal through FDS to make the transaction arm’s length and to protect our franchises against potential conflict of interest. Am I being over cautious? Of course I am. My role is to protect my franchise owners, their agents, and my brand to the best of my ability.

    There is also nothing wrong with an organization sponsoring event that support our industry - in fact it is good that there are new organizations that do that. To say that someone is doing something wrong because they have a big booth at a conference… there is absolutely no logic in that statement at all.

    My point was also that Fortress is heavily monitored and undergoes a very strict and independent audit process. Their funds are all maintained in trust accounts, which as you know in themselves have strict federal requirements for independent audits. Was there issues in the past – yes there was. I still stand by my comment, if my solicitors, who are experts in the field and to whom I pay a significant fee to protect the interests of this corporation, advise that there is no need for concern in regards to the offerings or the regulatory oversight being conducted… I am apt to consider that their advice is sound and based on full legal review and is advice I should follow.

    I am going to put this caution out there… for smaller, independent brokers, who offer ‘syndicated’ mortgages through a self-managed fund, such as yourself. To stand upon a soap box and decry the competition publicly is going to result in an increased spotlight on ALL who offer these programs – not just Fortress. In light of the processes I know Fortress has in place, are the smaller syndicated mortgage companies also prepared to undergo the same very stringent audit processes? If they are, will they also publish them so that they are publicly accessible to the consumer? As in the mutual fund and other investment industries a public prospectus is standard, can we expect this same from everyone in the syndicated mortgage industry? Do ALL providers of these products require all investors to receive ILA as Fortress/FDS does? Is this a reasonable expectation that we should have of all providers?

    No investment is 100% safe, including what you offer your clients. People are going after Fortress for a variety of reasons, and that is each person’s prerogative, it is one of the joys that we have in Canada – freedom of speech. That being said, I am suggesting that before we engage in rhetoric we take time to fully investigate and understand the topic of discussion. This investigative process allows for more educated and reasoned dialogue which in the long run only benefits our industry and the consumer. The commentary that was being used here did not take in considerations all of the available facts and as a result there was not a balanced and fair assessment of the situation.

    Furthermore, the context of the conversation did not align with the report which was being quoted in this article. The statement made by FSCO was simply that the consumer should always ensure that in the event they are choosing to invest in this product that they ensure the individual is licensed to do so in the province of Ontario. They also recommended that the consumer seek legal advice prior to making such an investment. That advice applies to ALL persons/companies who offer syndicated mortgage products – included yourself and all others, not just FDS and Fortress. That the commentary so quickly devolved into a frontal attack on two specific companies is inappropriate and not reflective of the notice issued by the regulator.

  • Ron Butler on 2014-09-25 4:16:44 PM

    Paul, I know that you have no reason to know this but the hundreds of brokers I am speaking about and myself for that matter do NOT offer these private syndicated mortgages through self managed funds, we don't create a pool for multiple mortgages.

    We hand craft each individual mortgage transaction with multiple investor disclosures for each transaction. Two, three or six investors study applications, credit bureaus, employment letters and appraisals and jointly decide to lend funds on one property all through individual disclosure documents. Painful and time consuming? Absolutely. Easy to understand for the average person and highly disclosed? Absolutely. Do we charge brokerage fees? We sure do. But it has worked for 50 years.

  • Paul Therien - CENTUM on 2014-09-25 4:28:44 PM

    Ron, you do understand that the way you describe how you manage the mortgage is exactly the same process as Fortress simply on a smaller scale... yes?

    They do full investigation of the project, independent studies, appraisals, etc - and their investors have access to ALL of that information... they are provided every single piece.

    They actually decline far more projects than they invest in because they have strict requirements. It is probably why several of the banks have joined forces with them and endorsed them, because they are so strict with everything.

    So if they do it the same way, lawyers have stated that they are sound, as well as the regulators, the banks like their program and audit processes - what is the big issue with them?

    I am not clear why people have such a huge issue with them.

    Is it that they are institutionalizing something that has already been happening for 50 years and that might take away investors from the smaller funds?

  • Ron Butler on 2014-09-25 4:32:46 PM

    Paul, respectfully, on that last point we can agree to disagree. Time will tell. I may be dead wrong and this is one time that I actually hope that I am.

  • Glenn May-Anderson on 2014-09-25 4:32:58 PM

    But, Ron, you are describing the exact process we go through with each of our investor clients on each capital raise we perform. Full disclosure of risks (at three separate points - prior to application, at review of loan documentation, and then the lawyer reviews all risks during ILA), terminology, budgets, appraisals/valuations, surveys, pro-forma/budget documents, developer history, and all other details germane to the project. I can speak for Fortress as it is distributed by my brokerage only, but our policies and procedures are lock-tight in this regard, all files are reviewed for suitability prior to investment, and we ensure each investor is 100% aware of what they are investing in, what the risks are, and that it is suitable for them. Same as you do with your investors.

    As for the "19%" you have continued to throw around, it is an incorrect number. The actual interest they pay is 8%. Acquisition fees, project management fees (to monitor that funds are being spent properly to increase the value of the subject property), ILA costs, etc. probably bring the overall CoB to somewhere in the 12%-14% range, depending on the term. If your investors are getting a 10% rate of return, then your borrowers - after factoring in legal fees, broker fees, lender fees, etc. - simply have to have a CoB that is either equal to or even higher than 12%-14%. I fail to see a difference.

    As for "Insured" or "Guaranteed" statements, our brokerage has never used these words, and if I discovered any licensed agent in our firm used them, I would terminate them immediately for breaching the Act and Regulations.

    There are some mortgage agents and brokers out there who manufacture job letters and do unscrupulous things in order to close mortgages, and this harms consumers. Does that mean we should shut down the entire brokerage industry, or weed out the bad ones? The same applies to my business.

    It's time we raised the bar.

  • Paul Therien - CENTUM on 2014-09-25 4:40:30 PM

    I am sorry Ron, I don't understand how you can disagree with what I said.

    My comments are based in fact with ample evidence that proves them to be true. Evidence from multiple sources including regulatory oversight.

    I have yet to see one single document from you, or anyone else, that would tell me I am wrong.

    If there is no evidence to the contrary that can support your claims, then on what information do you base your commentary?

  • Ron Butler on 2014-09-25 4:40:57 PM

    Glenn, if you believe that a mortgage for the development of a condo tower from a parking lot is identical to a mortgage on an individual residential house we don't have much common ground.

  • Ron Butler on 2014-09-25 4:56:02 PM

    Paul, I respect you but I am not required to agree to anything. We don't want to go down the road of regulatory oversight. The SEC did four separate audits on Bernie Madoff, he passed with flying colors and he was one of the most respected people on Wall Street till the day he walked into the FBI's office and turned himself in.

  • Paul Therien - CENTUM on 2014-09-25 5:04:39 PM

    Ron, I am not asking that you agree to anything.

    I am asking where you are obtaining your evidence that contradicts the evidence i have seen. I believe that it is a fair question to ask when you are painting such a dismal picture, regardless of the subject matter.

    Bernie Madoff... so do we then assume that all people that work in his industry are bad?

    Last comment then I digress, (this is much like pushing a chain uphil, and although I enjoy the respite from my day for some logical discussion - logic to me is derived from evidence based facts, not conjecture) - you do know that Fortress does not JUST finance high rise condo projects... yes?

  • Ron Butler on 2014-09-25 5:30:51 PM

    Paul, I know Fortress is involved in many different projects. I obtain my evidence from logic, this is a company doing commercial financing that banks turn down. You might say: Home Trust does that everyday with houses and you would be right but here's the thing, Home Trust, Equitable, MCAP and First Nat; they all have divisions that do these kind of commercial projects that banks turn down and THEY WON'T DO THESE DEALS. So I see someone doing deals that all these other folks won't do and they are spending big on marketing and even bigger money on referral fees to bring in investor money and I say to myself: this seems like a risky proposition. I agree that the risks are disclosed in fact I know they are, I just want these risks housed with the different regulator than the one I have to live with, that's the whole story.

  • Jake Abramowicz on 2014-09-25 5:33:43 PM

    I am only replying because I want to get rid of the notification in my inbox and the only way to do so is via a reply. Good argument, gents!

  • Paul Therien - CENTUM on 2014-09-25 5:55:46 PM

    Ron, I think you misunderstand what Fortress does. They do not finance deals that banks will not do, they finance the soft costs which banks are not longer ABLE to do. The banks are only allowed to go to 65% vs. the previously allowed 85%. Fortress finances the different, which is 20%.

  • Glenn May-Anderson on 2014-09-25 6:21:45 PM

    My previous argument was that the rates being charged the borrower are similar in my case, and in Ron's.

    Ron, to be clear: The banks do not fund equity capital. They can't. The banks fund construction financing up to 65% total project cost LTV. It's actually enshrined in B-20. They aren't permitted to go any higher than 65%.

    Prior to 2008, the banks did this. Now they do not. There is NO developer ANYWHERE in Canada that can get soft-cost capital loans from a bank. Period.

    This is not stuff the banks turn down. In fact, MCAP has provided construction financing for recent projects, and now Scotiabank is providing construction financing for 2 projects in Edmonton that we raised capital for earlier this year.

    In other words, major Canadian banks are co-investing in projects where we have placed investors. Our investors are in second position behind major construction financing banks. Just as you would do a private second mortgage for a self-employed borrower behind a first mortgage from a Canadian bank.

    As for the Madoff comments, they simply don't apply. This is a mortgage. The money is borrowed by a developer. Fortress is, in effect, the underwriting company on behalf of the investors. Fortress does not borrow the money. There is no way for Fortress to access investor funds. The investors have their name on title of the property, providing them more security than any other investment save a GIC or Seg Fund. Each project is a different mortgage instrument, therefore is separated from the others, so there is no risk of "something bad" happening to one and then dragging all the others down.

    Deloitte has certified the returns and final project budgets for the six projects Fortress has exited. Even the tinfoil-hat-wearing conspiracy theory crowd understands what that means in terms of legitimacy.

    Logic is fine, but if you don't have the accurate information to begin with, you can't deduce the correct answer.

  • Lior, Mortgage Edge on 2014-09-25 6:44:53 PM

    I was invited to events of Fortress, Hi Rise, to name a few. At the end of the day these type of originations take place outside of E&O. So if a broker is referring a client to one of those companies in exchange for a referral fee, they risk being sued directly by their client for an amount significantly higher than the referral fee should the investment and/or interest payment arrangements not go as planned. Simply put, Fortress, Hi Rise, and the likes do not indemnify the referring party from legal liability should the investor sue the broker.

    Fortress admitted outright that sometimes the payments to the investor may be late. When I asked the presenter under what circumstances the payment can be late, he said sometimes the administrator at the developer's office may be on vacation which can delay Fortress from paying out the interest to the investor. I kind of chuckled because a few moments earlier they were convincing the crowd how they were only dealing with large, blue chip, triple-A developers. How can a triple-A developer be late on interest payments to their investors?! Because their admin staff is on vacation?

    For brokers who want to get involved in this type of referral arrangements it's your choice, just make sure you're acting in your clients best interests and not your own pocket because if something goes wrong, the amount of money you can potentially be held liable for will far exceed the referral fee you will be paid.

  • DeJong on 2014-09-25 8:25:43 PM

    @Glenn

    "As for "Insured" or "Guaranteed" statements, our brokerage has never used these words, and if I discovered any licensed agent in our firm used them"

    From Fortress' own promo video on Langston Hall 2 at the 0:33 mark: "As with all Fortress highrise projects, the construction of Langston Hall is fully insured and bonded".

    Maybe I'm misunderstanding what "insured" means, but I can assure you from first hand experience that there ARE brokers out there marketing these products as "insured", making them "ultra safe" and "impossible to lose money on". That's criminal.

  • DeJong on 2014-09-25 8:40:34 PM

    I should add: Investors in that Langston Hall project have not seen interest payments in 18 months since the developer failed. Just this week they received a notification of a convoluted process to try to recover investor capital. Why is that necessary if the development is insured?

  • Lior, Mortgage Edge on 2014-09-26 9:24:01 AM

    It should also be noted, quite quickly too, that the representatives working for these companies will tell you that investors have typically flowed in through financial planners. That is correct... that said, financial planners who are licensed to purchase different securities also have a different type of E&O should they get sued by the investor. We happen to work with a few financial planners, all of them CFPs collectively managing close to half a billion in assets, and NONE of them use investor money in these ventures. Too risky even for those who have a far better understanding about investing and risk management than the average mortgage broker/agent.

  • Ryan Kirwan, HQ Mortgages Inc. on 2014-09-26 10:17:45 AM

    These comments were really informative... I too (along with my investors) are very leery with getting into these investments. I've been approached by reputable people pitching these opportunities, however, I've yet to sign anyone up.

    A couple of questions:

    #1 Can someone tell me what the outcome was on Langston Hall 2? No interest payments for 18 months and the investors may lose their capital?

    #2 The syndicate mortgages we are talking about are in second position (sometimes third) AND the investors have to agree to any postponements as the project moves along, correct? When these increases take place, are there new appraisals done to make sure the LTV is still within the said parameters outlined at the onset to the syndicate mortgage investor?

    Just trying to get a clearer picture.

    Thanks,
    Ryan.

  • Victor Simone on 2014-09-26 11:58:55 AM

    All the fun ends when someone loses an eye. When investors lose, every stake holder in the mortgage brokerage community loses. Keep that in mind when we help customers. Canada is one of the greatest countries in the world, and we just need to protect our clients' interests foremost.

    It's all good--until the next recession. When recessions happen our industry watch dogs come out swinging. Don't over-reach is all I need to say.

    I like both Mr. Butler's and Mr. Glen May-Anderson's positions. Keep doing what you're doing, and make sure you do right by the customer/investors. Sleep well. ;-)

  • Chad Robinson on 2014-09-26 12:26:07 PM

    HI Folks. I think most people are really missing the issue here. We can like these products or not. Like mutual funds or not. Private res or commercial or not. They all have valid points why one works for an investor or not.

    The issue becomes that a normal (and I state normal) mortgage agent does not have the ability to understand these products. Even with proper training.

    Ask 100 agents if they can explain in detail how a IRD calculation works. Most could not, yet they are out selling syndicated mortgage deals on commercial condo constructions. Has any one of them ever read a cost consultant report? Can they explain how the funding for commercial construction works? In my opinion if you couldn't underwrite the mortgage for the construction you shouldn't be selling the investors.

    Many of these projects I am sure will be successful and many will not be. The law of averages will play out that some will fail. What happens then?

    If the industry cannot educate on a simple issues then how and why are they selling a complex product to people.

    I agree with @RON that these should sold via the EMD market. With one caveat. The EMD should also be a Mortgage BROKER. Not an agent.

    It should also be an accredited product.

    The fall out will end being that private mortgages will come under the OSC and then we are all in trouble. The consumers, lenders and brokers.


    If a sophisticated investor wants to move into this product space great.

    Interesting note. There is a ton of money available in the EMD world. Why not setup a mutual fund trust and raise RRSP money that way?



  • M. Robertson on 2014-09-26 12:39:10 PM

    Well I have kept quiet about this but just can't resist.

    First, people are missing the point - the article is about ALL syndicated mortgages. Paul from CENTUM was quite right when he pointed out that this had become a forum to attack two companies specifically. In my opinion, that is just bullying, and it is shameful behavior.

    The second piece which, yes Paul, pointed out again. ALL investments have a margin of risk - regardless of who manages that investment, bug company or little broker on the corner. Fortress had one project that had a delayed payout, but it was delayed, not cancelled - and for the record if you read the Deliotte Audited documents on the exit, every one of those investors made all that was promised to them.

    Third, in several provinces these are managed as securities and the companies you guys are attacking are registered as such in those provinces.

    Maybe the moral of the story here is this: ALL syndicated mortgages should be regulated as a security. That way every single one of them will have to undergo the same rigid audit processes.

    Maybe I should go direct to the Minister of Finance for Ontario and make the suggestion... in fact I might do just that.

  • Glenn May-Anderson on 2014-09-26 12:59:03 PM

    @Chad - The agents and brokers in my brokerage do have that knowledge, and can read those reports, and can properly explain this to investors. It's the only thing we do - we don't do regular mortgage lending. And we have thorough and extensive training that each agent goes through to understand this. Also, over 2/3rds of those licensed in our brokerage are financial advisors of one stripe or another. The earlier comment about CFPs is interesting, give the number of CFPs we currently work with and who have a portion of their clients' portfolios invested in Fortress projects.

    I find it odd that no one other than myself believes we are capable of more, and that we should increase education at large in order to properly offer private lending products like this instead of burying our heads in the sand and wanting it to go away. It is a tremendous opportunity for us to increase our stature within the financial services community.

    With all the negative pressure on our industry right now, with the B2B investment in Verico, with CFF opening centres to help brokers diversify, why do so many brokers demean and devalue what we do, fighting on rate and price instead of service, instead of fighting to increase knowledge and training and raise the bar? We are in the financial services business after all, not the order-taking business. If we can offer advice on borrowing, and can do private mortgages and commercial mortgages, then why not this?

    I, for one, will continue to fight to raise that bar and increase education within our industry. The price of admission is still way too low, and I happen to believe we are capable of much more than we already do.

    And @M.Robinson - Mortgages ARE a security. They always have been. They exist under the MBLAA in Ontario due to an exemption, which was fought for long and hard by many very smart people in our industry back in 2006 during the consultative process for the new Act, when the issue of where it should reside was raised again. Plus, it was discussed very recently at the 5-year review with the Ministry of Finance (I was there). We have met with the Ministry, and I dialogue with FSCO on a regular basis.

    I share many of the concerns aired here. And, for the record, the bulletin in question was issued back in June by FSCO as a partial result of complaints that I FILED MYSELF with the regulator.

  • Ron Butler on 2014-09-26 12:59:45 PM

    @ Chad, you understand my concern, something goes wrong in a very public way and all private mortgage funding by mortgage brokers is jeopardized because these projects are so big they will attract a ton of attention and you are also quite correct in saying there is a lot of opportunity to raise money in a different marketplace where our regulator is not involved.

    @Mary, why don't you just call the Minister, I am sure you have his cell number.

  • DeJong on 2014-09-26 1:02:57 PM

    @Paul

    Both the CEO and COO of Fortress have been sanctioned by BOTH the MFDA and the OSC. Those entities do not hand out lifetime bans and substantial fines over minor transgressions. You can dress that turd up all you want, but at the end of the day, it's still one big steamer.

  • DeJong on 2014-09-26 1:05:15 PM

    @Paul

    Both the CEO and COO of Fortress have been sanctioned by BOTH the MFDA and the OSC. Those entities do not hand out lifetime bans and substantial fines over minor transgressions. You can dress that up all you want, but at the end of the day, it's still one big steaming turd.

  • Glenn May-Anderson on 2014-09-26 1:07:30 PM

    @Mary - Apologies, I wrote too soon. I can see that you are suggesting they be regulated as securities. Did not mean to imply that you were not aware they were securities. That's what happens when you write too fast and carefully read comments first. My bad.

  • Cory on 2014-09-26 1:08:20 PM

    @Chad Are you going to tell us that a Mutual Fund salesperson can explain all the ins and the outs of the funds they are selling to clients? All of the stock holdings, the fund managers strategy ie top down or bottom up approach? An EMD agent could not explain to you all of the ins and outs of the LP product they are selling through their EMD and how it is completely structured. Your theory would mean that EMD agents should be able to structure the entire LP structure or whatever EMD product they are selling. This makes no sense because very few if any do. At the end of the day, nobody truly wants to be in the EMD world if they don't have to be. Too many restrictions from the OSC on being accredited investors and qualifying for those products. Don't get me wrong, I'm not opposed to those rules necessarily and think all investors should be sophisticated. The reality is Syndicate Mortgages aren't going anywhere and aren't going to be in the EMD world. You can do all of the wishing you want but it's not going to happen. It is about education and doing the right things for your client. We all know that their are many shady agents and products in the EMD world. Putting syndicate mortgages there does nothing to protect the customer anymore than being in the FSCO world.

    If you truly don't like the product or simply aren't comfortable with it for your clients, then don't offer it. No point in making suggestions that aren't going to happen. I am not a big fan of Mutual Funds and the risk of 2008/2009 happening again and people loosing 20% to 40% of their portfolio, it doesn't mean I think people will stop investing in them nor are they any safer than a syndicate mortgage. Your logic would say that only somebody with $200,000 of income, $1 million of liquid net worth or $150,000 of accredited exempt money into one product should be allowed into a real estate backed product. If the client is educated, understands and is disclosed of all of the risks and rewards and knows exactly what they are investing into, why should they not be allowed to make that choice? You think you have the right to take that option out of their hands because of why? Mutual Funds or EMD products are no safer and in my opinion carry more risk.

    Like the article states, investors need to keep their eyes open, make sure the people who are offering them investment advice are licensed, that they understand all of the risks associated with investments and then take the proper time to make an educated decision. The same goes for any type of investment. It absolutely floors me that people deem these investments riskier than a mutual fund. Most people who stayed in their funds in 2008 are now just back to where they were then 6 years later. Many people became emotional and sold off and took a loss. You find me a Fortress investment where someone lost 30% of the original principal or didn't make a dime of interest in 5 to 6 years and i'll eat crow.

    Every investment vehicle has it's challenges, some are very transparent, some are hidden behind the scenes. It's the ones that deal with them head on and keep their word when they arise that I want to invest my money as well as my clients in.

  • M. Robertson on 2014-09-26 3:31:54 PM

    Ron, I know that you like to think you are clever, and all that stuff... but for the last time - my name is not Mary. Your insistence that this is who I am is getting really rather childish.

    To DeJong, you need to actually READ people's comments before you respond (referring to your comment about the CEO etc. being sanctioned) - If you had taken the time to read you would note that this was addressed.

    Also... RBC, CIBC, TD, Scotia - in fact almost every single investment firm and/or bank has been fined by the OSC at one time or another. Are you going to stop doing business with them? I am going to bet that you won't. I mean where would you send your mortgage business.

  • Ron Butler on 2014-09-26 3:36:21 PM

    Mary, you have to stick to Freedom 55. You were found my dear.

  • M. Robertson on 2014-09-26 3:41:48 PM

    Ron... you really are not that bright are you?

    I don't think my parents were so cruel as to name me Mary. Imagine the abuse I would have taken on the football field in high school.

    There was that song about a boy named Sue...


    Is this how you conduct yourself with clients? You do some limited research on Google and then proclaim it law? You can't even get my name right and people are supposed to take you seriously when you comment?

  • Ron Butler on 2014-09-26 3:45:24 PM

    You will always be Mary to me.

  • Ron Butler on 2014-09-26 5:29:08 PM

    Fortress lawyers email me threat of lawsuit without full retraction. Somebody is nervous.

  • Glenn May-Anderson on 2014-09-26 6:17:52 PM

    @DeJong - Why don't you actually take the time to read both, because it's painfully obvious you haven't. Do you know what an agreed upon statement of facts is? Or a settlement? Did you know they requested the OSC conduct an investigation?

    And post your real name, too. It's easy to be an anonymous troll. Your comments would hold actual weight if you used your real name.

    I'm still open to a one-on-one discussion. Still don't have an email from you.

  • M. Robertson on 2014-09-26 6:57:50 PM

    Ron, Probably because you are speaking out of the side of your mouth and slandering the company without any evidence or facts behind you. I am not saying that they are right, wrong, good or bad... but ANYONE who is... as you claim... a professional knows that you do not go on public forums and slander a company. Especially when your claims are not based on any facts, only the conjecture and rumours being spread around by people like DeJong, who I would bet works for one of fortresses competitors.

    Every time you shoot off at the mouth without facts, you degrade this industry. You act like the great spokesman for all brokers on this site, but in this case... you deserve to get sued.

    More than one person has asked you where you are getting your facts, and you have side stepped the question every single time, and that is because you can't produce them.

    If the tables were turned, and people were doing what you are - you would be outraged.

    Behavior like that... well you deserve to get sued for slander.

  • Jason on 2014-09-26 7:01:16 PM

    Um, so I am reading this, and I have to say with some of you brokers who claim to be professionals, is it any wonder that some lenders have pulled out of dealing with brokers? Some of you people are just vicious rumor mongers. Do us all a favour and get out of the industry or just shut your traps. You are making all brokers look bad.

  • I agree with Ron Butler on 2014-10-03 6:45:05 PM

    This is an industry discussion and Ron's opinion is not slanderous whatsoever. The fact he got a letter threatening him speaks volumes about the Fortress product. The facts are: This is a high risk investment because there is a pattern in this type of investment scheme. No cash flow from projects, outrageous commissions, a return that is funded by new monies coming in, no regulatory oversight and using a weakness in the FSCO regulations to distribute a "security" to non accredited investors. The punch line is the history, sanctions and penalties of key players. This looks like an episode of American Greed. Same formula, same ingredients and soon enough, the same ending.an extract from CSA: 1.contacting prospective investors to solicit their interest in an offering;
    2.undertaking most of the selling activities;
    3.receiving most of the broker-type compensation for the sale (e.g., 6% commission); and
    4.ultimately effecting the sale through a registered dealer.

    Persons who carry out these activities for a business purpose should be registered. However, it appears that some unregistered persons are using existing section 8.5(a) to continue to engage in registerable selling activities but, as a final step, running the trade though a registered dealer thereby, in their mind, 'sanitizing' the trade.

  • Alta Broker on 2014-10-06 2:27:17 PM

    FYI, these products are coming under the new securities regime proposed in BC and Ontario.
    Managing brokers are liable for the sales activities of their agents. The managing broker is carrying a tremendous amount of uninsured liability on these products.

  • Ron Butler on 2014-10-14 4:38:21 PM

    With regards to Fortress Capital Inc., Fortress Real Development Inc., Jawad Rathore and Vince Petrozza, we posted certain comments under the article "FSCO warns about unlicensed syndicated mortgages" We completely and without reservation retract any and all comments, suggestions opinions or statements made. We will not repeat any of the foresaid comments, suggestions, opinions, or statements and withdraw them unreservedly

  • Bonzo Dogface on 2014-10-14 8:40:00 PM

    Seems like for all the negativity Mr. Butler was throwing out and his jokes about someone being nervous that some lawyers put him in his place. I agree with the earlier comment that this kind of nasty mud throwing makes all us brokers look like immature idiots. Mr. Butler looks like a bully that has finally had a light shined on him and scattered back into his little hole. I see some good thoughtful comments and it looks like there are lots of questions about Fortress but a lot of misinformation. I wonder why some brokers are so nervous if well known mortgage people seem to support it maybe they are worried it will take away from the private mortgages they do. I also wonder why no one talks about the high rates and big lender fees some brokers charge which could be seen as predatory lending and no one talks about how that could make things bad for everyone. I have worked with Fortress for two years now and never had happen some of the bad stuff that is mentioned here so I will keep doing it but I think brokers should look into it for themselves and make up their own mind.

  • Jake Abramowicz on 2014-10-14 8:56:38 PM

    Wow. Thought I'd never see the day. But it sure is a good day seeing that retraction.

  • Glenn May-Anderson on 2014-10-14 9:24:54 PM

    Bonzo, no need for those types of comments about Mr. Butler.

    For those interested in an objective perspective on Fortress, and what happens when something goes "wrong" with a project, I would recommend reading the following:

    http://www.robinsappleby.com/resources/blog/details/bridge-beat/2014/10/09/how-fortress-real-developments-held-the-fort-for-investors

    I realize there are many brokers, with private residential deals, that would provide the same type of service to those investors where a deal went "south." I also know, based on published statistics of E&O claims (in Ontario at least), that the majority of those claims (where the broker did not or could not do anything to protect the investor) came from private lending on residential mortgages.

    For the record, since 2008, the number of E&O claims filed by Centro Mortgage, FDS Broker Services, FMP Mortgage Investments, or FFM Capital (the 4 brokerages in Ontario authorized to deal in Fortress) related to investors losing capital, or lawsuits regarding these investments/loans and their associated developments, is exactly zero. The number of clients who have lost their initial investment (loan portion), and/or not received any returns, is zero.

    How many other brokers can make that claim?

    So before you throw stones at anyone involved with Fortress, I would suggest taking a long look in the mirror, or at those brokers who do private mortgages and don't have the chops or experience to do so properly. At the end of the day, it is all up to the Principal Broker to determine how well they run their company, and the due diligence they perform on their deals.

    I'll put the due-diligence I do on Fortress development mortgages, or the due-diligence that Fortress performs on these deals, or the KYC and suitability work-ups we do on potential clients, up against any brokerage out there.

    Again, this is a personal invitation to anyone who wants to learn about the entire process we go through. I will personally walk anyone through the processes that Fortress and FDS follow to ensure these are solid projects, and are suitable for qualified investors.

    My hope is that you will make your own informed decision based on facts, not rumour or conjecture.

    And the next time your E&O is up for renewal, and you curse the increase in your premium, don't look at us. It's not our fault.

  • Ross Kay on 2014-10-15 9:50:39 AM

    E&O claims are generally determined by 2 factors in both the real estate and mortgage brokerage profession.

    1) Dramatic and financially damaging Market swings
    2) Level of Consumer education

    We completed a survey in early 2014 of 2456 consumers who purchased a home and secured a mortgage in Ontario during the 2010-2014 period.

    Under 3% of those consumers surveyed, were fully aware of both RECO and FSCO or what power those bodies had.

    In a follow up survey, after those who originally responded had been supplied a one page email with 12 point educational update, 21% responded they now felt either RECO or FSCO rules had been breached in their last transaction.

    Most TV viewers in Ontario will notice the increase in Consumer Protection commercials.

    That should be a warning to every LTTP whether in the real estate trading or mortgage lending business.

  • Ron Butler on 2014-10-15 10:02:08 AM

    Chapter one closes, the book has a long way to go.

  • Ron Butler on 2014-10-16 2:46:17 PM

    My recent posting was not intended to damage the reputations of Fortress Capital Inc., Fortress Real Development Inc., Jawad Rathore or Vince Petrozza and was not directed at them in any way. I apologise for any confusion that I may have caused.

  • rose on 2015-01-15 11:58:12 AM

    Is there any one from British Columbia who has invested with Fortress Real Capital and haven't had their returns yet after investing with them ?

  • Dogpounder on 2015-02-22 8:59:19 AM

    Hilarious read. (comments, not article.)

  • jamie Levitan on 2015-05-07 9:24:08 AM

    the Avenue on the Brookdale Development Madi Developments was pre-selling fell apart. Now Fortress took over and placed a new sign with their name over the sales office a few months ago. Now CRBE has a huge banner next to the sales office with a "power of Sale" notice! What the heck is going on? No wonder this project cant move forward. all in my opnioin

  • jamie Levitan on 2015-05-07 9:25:55 AM

    the Avenue on the Brookdale Development Madi Developments was pre-selling fell apart. Now Fortress took over and placed a new sign with their name over the sales office a few months ago. Now CRBE has a huge banner next to the sales office with a "power of Sale" notice! What the heck is going on? No wonder this project cant move forward. all in my opnioin

  • Jaqueline on 2015-06-08 6:26:23 PM

    I'm no longer positive where you are getting your information, but good topic. I must spend a while finding out much more or working out more. Thank you for magnificent information I used to be looking for this information for my mission.

  • christopher stewart on 2015-10-15 8:39:51 PM

    I am currently attending a 5 day training course to become a licenced mortgage agent. Today during our class we had some guest presenters one of which was from fortress/feds. His team brought in pizza and told us all about how we could make great commissions peddling 30,000.00 investments in syndicated mortgages. The whole presentation was about as greasy as a time share presentation. When I asked valid questions they were dismissed or avoided. The second reason I found this presentation greasy the fact that it was specificly targeted at me and my classmates who are completely green and have absolutely no experience. By design they were targeting naïve inexperience. Right away that is a red flag. I am disappointed with the school for providing access to me and my classmates to these presenters today. I am also very suspect of any large scale schemes that target the potential licences and access of newly minted agents to be sales representatives to sell their products. There seems to me something funky going on here and I don't like it.

    disclaimer: the above is my unqualified opinion of the presentation I saw today. I have nothing but my gut fillings to go on.

  • Julie on 2016-03-25 9:20:37 PM

    There is nothing wrong with making money. Syndicated investments are not all scams. As long as you have a registered mortgage brokerage it is all legal. When you invest your money into a syndicated mortgage, you are lending money. So it is normal to make 8% or more in interest. When you borrow money from a private lender or a private mortgage it is always at least 10% interest. So there is nothing wrong here to charge that much interest and make money.

  • Abby Dollars on 2016-05-11 2:23:59 PM

    To those who are not a fan of Syndicate Mortgages to fund development projects - don't purchase, promote or sell them. It is really that simple. According to FSCO & OSC - a mortgage license is what is required by law to engage in this business - if you are not comfortable with this reality - dont hate the players... hate the game.

    The mortgage broker business is otherwise saturated with bazillions of fraudsters who engage in cooking up fake documents to obtain mortgage approvals, non-disclosure with regards to private lending risks and other non-compliant activity. It has been this way for years - and to suggest otherwise is either naive or purposely misleading.

    I haven't sold or purchased a syndicate mortgage - but I like what I see (in theory). However, just like a mutual fund - the investor should know what they are getting into before they invest - and the salesperson should do their KYC and follow the rules established by regulators. It is not illegal or immoral to sell or purchase as syndicate mortgage.

    Funny... with the billions of dollars that investors have lost purchasing mutual funds - I dont see why so much vehemence over the syndicate - when there are far more (documented & undocumented) infractions in the mutual funds space. Having a CSC or Mutual Fund license hasnt fixed that problem as it relates to non-disclosure, false promises, etc. It is naive to think changing the regulatory body and licensing requirement for syndicate mortgages - will achieve the desired effect by the detractors on this blog.

    If you like private lending or small syndications - stick to that. If you prefer other types of syndications or other investment vehicles - do your KYC/KYP... what is so complicated about that?

    Just my two cents.

  • uninvited party on 2016-05-25 1:21:31 AM

    Clearly you understand the breakdown of the regulatory watchdogs and the budgets they have to actually trace the moneytrail. No doubt your aggressive demeanor and willingness to launch defamation law suits will help you. I can't help but infer that anyone operating under these conditions may have something to hide. The SEC would have handled this differently - educated guess that in partnership with the FBI, the cost to truly identify the moneytrail could surface whats actually happening. These comments are not directed at any particular party nor are they intended to suggest any wrongdoing in any capacity. These comments are simply a reflection of personal opinion. Lets see how this plays out.

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