While the Financial Services Commission of Ontario amended the rules for mortgage professionals’ involvement with non-qualified syndicated mortgages—including a $60,000 investment cap—not everybody thinks it’s enough.
“Since 2016, I have told people over and over again that there is no way that mortgage people should have ever been licensed to sell syndicated mortgages,” said Calum Ross, a leverage wealth expert and VERICO broker with Mortgage Management Group. “Despite the fact that they’re now cracking down on this, the bigger question is why were they ever allowed to sell them, and who’s going to pony up the cheques when a massive amount of investors lose a huge amount of money?”
Ross is adamant that syndicated mortgages are beyond mortgage professionals’ depth of knowledge. To elucidate his point, Ross mentions that the vast majority of people involved with global debt capital markets are not qualified to properly size up syndicated mortgages.
“How mortgage people, and realtors, were ever allowed to sell them, and/or thought they were qualified to sell them, is absolutely idiotic to me,” he said. “Real estate and mortgage professionals were never, and should never have been, licensed to sell investment products and represent them as investment-grade assets. Even people who have completed the securities course and are licensed with investment firms would never dare recommend these as investment-grade assets.”
The crux of Ross’s argument is that non-qualified syndicated mortgages should only ever be presented to sophisticated investors and very high-net-worth individuals.
Moreover, because the public has been imperilled, Ross hopes there are legal ramifications for mortgage and real estate professionals who peddled syndicated mortgages as suitable investments to “unsophisticated” investors.
Ross has come across myriad instances wherein retirees on fixed incomes were sold syndicated mortgages. He’s disturbed by the ethical lapses and intends to help initiate a legal charge for restitution.
“Who’s going to protect the end users for this? These mortgage people actually have the audacity to think [the FSCO amendments] are in any way is unfair, and who are instead not concerned about the material risk they put end user consumers in.”
Real estate lawyer Bob Aaron counts among his clients a company that sells syndicated mortgages, and notes that it is reputable, has structure, acts transparently, and provides full disclosure. However, he acknowledges that some players in the syndicated mortgage business prey on unsophisticated investors.
“They take advantage of consumer ignorance combined with a lack of transparency and total disclosure to get people into syndicated mortgages that are only risky, and where people don’t understand what they’re in,” said Aaron. “They’re blinded sometimes by seeming returns, but if your capital is not protected by the equity in the investment, then the returns are irrelevant.”
Ross believes that mortgage professionals have no business flogging syndicated mortgages because of their sheer complexity, however, Aaron believes in a moderated approach.
“I’d be in favour of an extra layer of regulation so that mortgage brokers and agents have to have some further qualification to peddle this type of investment.”
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