Mortgage Broker

including those for a proposed development, and must keep detailed notes in the client file to prove these discussions were held. In and of itself, a client's signature on the FSCO Form 1 will not be taken to mean full understanding of a deal, warned FSCO. Effective July 1, 2015, FSCO also implemented new mandatory investor/lender disclosure forms that must be completed by the mortgage broker, including an addendum for construction and development loans. David Franklin says ordinary investors can read and understand FSCO's documentation. "I believe the investor/lender disclosure forms from FSCO give full information that people can understand. ey brought in a newer one for development mortgages, but it's in English and tells you everything you need to know if you take the time to read it." Franklin's issue is not with the regulator's documentation, but rather with what he perceives as a lack of enforcement. He maintains that unlicensed promoters – driven by "commissionitis" brought on by the promise of excessive referral fees – published websites and held seminars marketing "safe and secure, RRSP-eligible" syndicated development mortgages to consumers. Qualified investors were then funneled to Fortress-affiliated mortgage brokerages, where they were signed up. "People were using these websites to entice investors to invest in syndicated equity development mortgages. ey brought in a lot of investors who didn't know anything. "Now," Franklin continues, "FSCO knows that these deals are being marketed and FSCO is required to find out what's going on in the marketplace. People are being told these are secure investments at eight per cent. FSCO should have stopped it." e financial services regulator did take action last fall, when it ordered another company, Tier 1 Transaction Advisory Services Inc. of Toronto, to "cease and desist" unlicensed activities related to syndicated mortgages. "e syndicated mortgage investments facilitated by Tier 1 Transaction pose a significant risk to current and potential future investors," reads the FSCO order. "e value of the properties against which the mortgages are secured are likely not of sufficient present value to satisfy the investments by the individual lenders/ investors." A Matter of Definition David Mandel is President of First Source Mortgage Corp. in Toronto. A 28-year industry veteran, he specializes in traditional private mortgages and maintains there is a big difference between the deals he arranges and the so-called syndicated mortgages that have recently been in the news. "ere are all types of mortgages; therefore, there are all types of syndicated mortgages," says Mandel. "e definition used by FSCO and mandated by the Ministry of Finance does not decipher between any of these differences. e majority of commercial syndicators out there – companies like mine – are doing first mortgages with 65 per cent loan to value. [But] I was told by FSCO that their hands are tied. ey have to call the mortgages we're hearing about in the news 'syndicated mortgages' even if they're secured by air or have very little borrower equity, if any. ey're not really syndicated mortgages. ey're syndicated mezzanine loans or syndicated equity disguised as a mortgage. Somehow, private equity has been allowed to be dressed up as a mortgage." Mandel says syndicated mezzanine loans or equity need to be separated from every other type of syndicated mortgage. As well, he argues that project equity should not be allowed to be registered as a mortgage, but rather as collateral security, and defined as such, as it has no place in the use and definition of a true mortgage. Since, in many instances, there is CMB MAGAZINE cmba-achc.ca winter 2017 | 23 syndicatedmortgages

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