ID
2019-002

Type
Supervision
Sector
Mortgage Brokering Sector
Status
Public comment closed
Date
Comment Due Date

FSRA is committed to strengthening protection of investors in high-risk syndicated mortgages. Mortgage brokerages and mortgage administrators must provide adequate disclosure of the risks associated with syndicated mortgages in a way that is easily comprehensible to investors.

Provide your feedback

FSRA is now posting a proposed risk-based Supervision Approach for High-risk Syndicated Mortgages for public comment. The approach includes a new supplemental disclosure form 3.2.1. This supervision approach and new form are in line with FSRA’s priority to provide effective supervision of syndicated mortgages investments.

We are seeking your feedback on the proposed supervisory approach and the supplemental disclosure form:

  1. Does the supervision approach address the appropriate risks relating to syndicated mortgages for retail investors?
  2. Does the new supplemental disclosure form clearly highlight that these are risky investments? Is the language in the new disclosure form easy to understand?

Please provide your feedback on the Supervision Approach and disclosure form 3.2.1 by September 6, 2019 by clicking “Submit a comment or ask a question.”

This approach will be reconsidered if it is made redundant by the transfer of the regulation of high-risk syndicated mortgage transactions to the Ontario Securities Commission (OSC).

We will continue to focus on burden reduction, including other syndicated mortgage disclosure forms (link to forms 3.0, 3.1 and 3.2), to find opportunities to reduce regulatory burden on lower-risk syndicated mortgage transactions – we also welcome feedback on this opportunity so that we can make a proposal in this respect.

Please provide your feedback on forms 3.0, 3.1 and 3.2 by September 6, 2019 by clicking "Submit a comment or ask a question."

Useful Links

 

#By submitting your content, you agree to have your materials posted on our engagement portal, used in reports and other materials prepared by Financial Services Regulatory Authority of Ontario (FSRA) that may be shared with the public. Content is moderated so that all posts are respectful and professional. The Freedom of Information and Protection of Privacy Act, R.S.O. 1990, c.F.31, applies to all online content.

Use left and right arrows to navigate between tabs.
Sector Comment Date posted Sort ascending
Mortgage Brokering Sector
[2019-002] Diane Falcione - Hillmount Capital Inc.
Brokerages dealing with designated investors will not be affected
We appreciate that FSRA is confirming that brokerages who deal with designated investors (as defined in section 2 of O. Reg. 188/08) will not be subject to or affected by the targeted approach being considered. However, the proposal does not indicate the means by which a brokerage can identify itself as one dealing with only designated investors on non-qualified syndicated mortgages. How would a brokerage go about notifying FSRA of this policy so that they are exempt from the targeted approach?

High LTV Ratio as a Key Red Flag
Applying this red flag to a construction mortgage for a single-family residential property (i.e. not a large, multi home/unit development) will subject brokerages and lenders to additional administrative burdens and unnecessary oversight.
Determining LTV by using the total value of all mortgages on title compared to the "as is"" appraised value is a flawed method of determining an accurate LTV on a construction mortgage for a single-family residential property for the following reasons:
• The total value of the construction mortgage is not advanced at one time- it is advanced on a cost to complete basis so that there is always enough funding in place to complete the project and soft costs are never included;
• The total amount registered on title is not collected from investors on closing of mortgage. Rather, the investors will advance funds on every draw based on the LTV threshold and the full amount they committed to the construction mortgage;
• In a residential construction mortgage, LTV is calculated based on the following industry standard equation: LTV = total outstanding loan / appraised value at completion, less estimated HST on sale and less estimated costs to complete. This calculation is industry practice for construction lenders that concentrate on loaning less than 75% LTV. The progression of the construction adds value to the property. As such, we implement a process which ensures the LTV throughout the construction of the property is maintained at the agreed upon limit (i.e. 65%, etc.). We only call up the appropriate funds from our investors on a pro-rata basis of their commitment, such that the total collected from investors to date does not exceed the amount we are willing to advance to date (i.e. at the specified LTV).
We believe residential construction mortgages (for single family homes) with an LTV of 75% or less should be specifically excluded from the high LTV red flag and only be considered high risk if they contain a subordination clause or conflict of interest.

Feedback re: Forms 3.0, 3.1 and 3.2 for Non-Qualified Syndicated Mortgage
Forms 3.0 and 3.1
The current requirement to obtain a signed Form 3.0 and Form 3.1 for investors on each and every mortgage transaction they invest in is extremely cumbersome to both the brokerage and investor. The information in these forms does not materially change from one week, or month, to the next. While we agree that Form 3.0 and Form 3.1 are good tools to gather an investor’s details and information to determine their suitability for any given mortgage investment, we do not believe it should be completed for each and every mortgage transaction they invest in. We propose the following:
1. Require the completion and retention of Forms 3.0 and 3.1 upon investor sign up as a tool to determine suitability and whether or not the investor is a designated investor (as defined in section 2 of O. Reg. 188/08). In other words, make the Forms a requirement for the investor’s file as opposed to each mortgage transaction.
2. Require a brokerage to request a written acknowledgment from their investors on an annual basis confirming that the details in their Form 3.0 have not materially changed (therefore confirming their suitability). If they have materially changed, require a new Form 3.0 and 3.1. NOTE that this is industry practice in the Investment industry which requires Brokers regulated by the OSC to confirm if anything has changed on the KYC document

Form 3.2
The feedback we have received from our designated investor base is that this Form is extremely long and unnecessary for a sophisticated investor. When being approached for investment in any mortgage investment, investors (both designated and non-designated) are provided with detailed deal summaries regarding the transaction that includes all the details contained in Form 3.2 as well as copies of the mortgage application, borrower credit reports, appraisals, rent rolls, leases, environmental reports, etc.
There is also no benefit to providing a new Form 3.2 (and Form 3.0 and 3.1 for that matter) on renewals of non-qualified syndicated mortgage if there has been no material change to the original deal and we propose this requirement be waived.

September 6, 2019
Mortgage Brokering Sector
[2019-002] Jason Vyner - New Haven Mortgage Corporation
Thank you for the opportunity to provide our feedback on the Regulations and the Proposed Supervision Approach. Please review attached document with our recommendations.
September 6, 2019
[2019-002] J.P. Boutros - Mortgage Professionals Canada
On behalf of President and CEO Paul Taylor, attached is the submission of Mortgage Professionals Canada, re ID 2019-002 - Proposed Supervision Approach for High-risk Syndicated Mortgage Investments.

Thank you.
September 5, 2019
Mortgage Brokering Sector
[2019-002] MITCHELL OELBAUM - VECTOR FINANCIAL SERVICES LIMITED
I have included a marked up Form 3.2.1 with a few comments as well as a letter.

Thank you
September 3, 2019
Mortgage Brokering Sector
[2019-002] Malcolm Eccles - CIR Mortgage Corp
see attached document
August 30, 2019
Mortgage Brokering Sector
[2019-002] Bryan Jaskolka - Canadian Mortgages Inc.
In response to the Request for Comment – Proposed Supervision Approach for High-risk SMIs, we would like to contribute the following:

*For definition purposes, we define retail investors as non-accredited investors, as defined by the MBLAA.

It is our studied opinion that retail investors should NOT be allowed to invest in syndicated mortgage investments whose purposes are of a construction and development nature. Our logic is as follows:
o Construction and development projects require a high degree of analytical expertise and a deep familiarity with the intricacies of lending on a construction or development loan. Experience in the residential space does not necessarily translate to suitability for commercial, construction or development lending.
o The VAST majority of agents and brokers in the community are RESIDENTIAL in experience and knowledge. There are very few agents/brokers who are qualified to analyze, underwrite, and facilitate financing for commercial projects. We suggest that a special designation should be established and required for an agent or broker who wants to participate in this class of assets. Qualification for this designation would require 5 or 10 years of experience in the industry, some level of proven experience in commercial/construction/development lending, and perhaps a specific educational background (i.e. a targeted course).
o We also suggest that retail investments in these types of SMI should be restricted entirely from the brokerage industry, and only allowed be permitted via an EMD as a form of exempt securities offering.
This has been the single largest abuse seen in this space, which has given the regulators and industry participants a bad reputation. We believe that retail investors are simply not qualified to assess the information they are being provided on complex land, development, and construction projects.

We would also like to propose that retail investors should also likely be limited from SMI in general for even residential mortgage investments. It is our opinion that If an MIE has such limited liquidity that it must even syndicate basic residential transactions, then this may represent transactions of low caliber or companies of limited experience. These types of investors, namely retail, are better suited to pooled investment vehicles (MICs) which are governed by the securities regulators, and require either EMD sales or are forced to limit their involvement to a nominal amount ($30K) via the O/M Exemption.

We would also like to speak to the use of LTV as a defining metric used in the suitability of investors and transactions. We propose that the use of LTV is flawed, as it is relative to location, asset class, and liquidity. A subdivision in rural Saskatchewan is not the same risk as a subdivision in urban GTA, for example. An LTV of 75% LTV (if such a limit was prescribed) would not be an accurate representation of the risk in both scenarios, yet might mislead an inexperienced or retail investor to believing that they were equally suitable investments. Furthermore, the potential would remain for unscrupulous characters to manipulate LTV figures by using appraisers who are not qualified and who may (accidentally or otherwise) inflate the figures. An inexperienced investor may not be able to identify these situations as they occur. Enforcing an LTV metric limit would be hard to control and enforce, and could actually result in an increase in value misrepresentation.

To summarize, we believe that restricting high-risk or commercial SMI investments entirely to accredited or higher class investors will protect the interests of investors and brokers. Further, using only qualified COMMERCIAL operators in the mortgage industry or, alternatively, via securities regulators and EMD, will further strengthen the quality and success of SMIs. Subordination agreements should never be allowed for retail investors as these represent a very complicated legal structure with significant risk to the subordinate lender; most retail investors likely don’t understand the implications for their investment or risk tolerance.

Thank you for the opportunity to contribute to this discussion.
August 26, 2019
Mortgage Brokering Sector
[2019-002] Eli Dadouch - Firm Capital Corporation
Please see our feedback on the proposed High Risk Syndicated Mortgages supervisory approach and the supplemental disclosure forms in the attached file.

August 22, 2019
Mortgage Brokering Sector
[2019-002] Evan Cooperman - Foremost Financial Corporation
Thank you for the opportunity to provide comments on the proposed Supervision Approach. Attached is our feedback.
August 22, 2019
Mortgage Brokering Sector
[2019-002] Tom Jarvis - 2043919 Ontario Ltd O/A Best Choice Mortgage Services
Two comments
#1 The new disclosure form that is proposed should be signed by the broker of record not just a broker
as ultimately the broker of record should be accountable for anything distributed by the brokers/agents

#2 I am somewhat concerned that investors will ultimately get numb to the mountain of papers that they are required to sign before each investment. So not that this isn't a good idea but some investors will be signing a book and this may get lost in the stack.
August 19, 2019
Mortgage Brokering Sector
[2019-002] Pierre Pequegnat - DLC Sherlock Mortgages
Attached is a letter with my commentary.
August 16, 2019
Mortgage Brokering Sector
[2019-002] Reginald Robert Barnes - Barnes Mortgage Solutions Inc.
Greetings and thank you for the progressive approach to regulating non-qualified syndicated mortgages which is warranted for high risk transactions relating to retail investors and 1) Yes, the supervisory approach is urgently needed to protect investors who are lured into deals by high returns and lack the experience to discertain otherwise and 2) Yes, the new disclosure form clearly assists in this goal.
Since the introduction of non-qualified syndicated mortgages our brokerage has chosen to not deal in any non-qualified mortgages involving two or more parties (unfortunately this includes farms and industrial properties) and this is something I believe warrants review. (ie: 2 brothers can't lend into a farm deal even if they qualify as designated lenders?)
Thank you for your dedication and efforts in protecting our industry
August 15, 2019
Mortgage Brokering Sector
[2019-002] David Franklin
1. These mortgages should be named syndicated equity development mortgages, since by your criteria, this is what they are. They are not a normal syndicated mortgage where there is an as is appraisal and the loan to value is less than 100%.
2. Section 2, the acknowledgement, should add that the Mortgage Broker explained the mortgage investment to the investor and the investor understood it. The Mortgage Broker must keep notes of the meeting, so if the investor later claims, because the investor lost money, that he did not understand it, the notes are provided to rebut the investor’s understanding. Regulation 188/08, s 46 should apply, so there is a reverse onus on the mortgage broker.
3. Mortgage brokerages selling these mortgages should have a minimum of $10 million of E&OE insurance including coverage of $10 million for fraud.
4. Alternatively, since the mortgage brokerages selling Fortress either went bankrupt or went out of business, all individual parties licensed by FSRA should have their own insurance, as is required in the other professions, and this way the insurance company will do its due diligence before offering the insurance. The minimum amount of insurance, both E&OE and fraud should be $10 million.
5. Your position that the mortgage broker file the form within 5 days will help FSRA in being proactive and the $200 fee will help defray the cost of oversight for these mortgages.


August 12, 2019
[2019-002] Grant Fournier
This is long overdue for Syndicated Mortgage investors. Those previously empowered by FSCO were allowed to prey on novice investors previously with little to no oversight, protection or enforcement.

This is certainly a step in the right direction.
August 11, 2019
Mortgage Brokering Sector
[2019-002] Andrew Furino - Capital Mortgages Inc.
I reviewed the supervision report and the new Form 3.2.1 today. Fully support the actions and disclosures that have been undertaken. On the Form 3.2.1 my suggestion would be that in Section 2: Acknowledgement should be specific that it is the Principle Broker and the Principle Broker only that would sign off on this. Many brokerages have multiple licensed brokers and allowing any Mortgage Broker to sign this will provide the opportunity for a broker to circumvent direction of the Principle Broker in this regard.

August 9, 2019
Mortgage Brokering Sector
[2019-002] Sharon VanderDuim - Mrs.
I have been in the financial industry for 45 years, (branch management and manager of mortgage development for a major bank) and a mortgage agent since 1999.
I believe that anyone that does a syndicated mortgage should hold a separate licence with accountability.
We do not do syndicated mortgages.
i also believe that our mortgage licencing process in general should be enhanced to actually provide training as to how to complete an actual mortgage.
The course is so outdated, that with the use of computers, the calculator is obsolete. Yes you need to know the difference for the way in which interest is charged, but the current course learning modules is from the 1970's.

I think that there should be a course for private financing in general, that agents/brokers should have the proper knowledge and expertise in order to transaction in private funds
August 9, 2019
Mortgage Brokering Sector
[2019-002] harlan redlick - H Redlick Consulting
If you don't allow people who lost their securities licenses for fraud to peddle syndicated mortgages, you will have less frauds.
August 8, 2019
Mortgage Brokering Sector
[2019-002] Stephen Lidsky - PMC Funding
Thanks for the opportunity to be part of the process. I have shared thoughts and ideas previously, and hope that final decisions have not already been made. That being said, I am in favour of the new forms and disclosure requirements faced by brokerages...... as a replacement to previous forms and not in addition to them.

As I have said in previous emails, the definition of a "Non-Qualified Syndicated Mortgage Investment" needs to be revisited. Narrowing the definition of a non-qualified SMI will significantly reduce the administrative burden that many brokerages are having issues with. Just because a syndicated mortgage is registered on title to a commercial property does not mean it implicitly contains a greater risk than a residential loan. I would argue the opposite: A loan of less than 65% of the value of a commercial or industrial building contains significantly less risk than an 85% loan on a residential property due to the likelihood of the borrower to service the debt.

Here are a few points I want to mention:
- borrowers who need private funds for shelter are doing so because they cannot source funds from a traditional institution due to past credit issues or an inability to confirm debt serviceability. Commercial borrowers in most cases arrange private financing because they can close their loan much faster - generally in days or weeks rather than months. When time = money with an income-producing property, in many cases it just makes more sense to arrange private financing; despite the increased fees and interest payable, the borrowers can generate revenues from the property due to the availability of timely private funds.
-I cannot understand why a private mortgage on a commercial property would be "riskier" when there is more than one lender, as opposed to only a single lender (i.e. not a "syndicated" loan). Presumably the mortgage terms, the borrower, the property, and the security are all the same, regardless of the number of participants in a loan. In my opinion, having a lender take such a large position in any one deal exposes them to more risk, not less. Despite this, deals with only 1 lender are subject to the previous forms (Form 1 instead of Form 3.2). How does putting all their eggs in one basket protect the lender?
-the current and proposed forms (3.1, 3.2, 3.2.1) seem to be targeted toward construction projects specifically, and are not generally applicable. As a result of the increasing documentation requirements, my brokerage is moving away from providing construction financing, and is instead focusing on more traditional, single-advance loans on title to commercial properties. As such, much of the forms is not applicable. Perhaps these forms should apply to deals that have any of the three identified potential risk factors exclusively.

My suggestion would be to incorporate the 3 criteria that make the Form 3.2.1 necessary into a new definition of a non-qualified SMI, and include the contents of 3.2.1 into Form 3.2, which should be completed for ANY deal that fits the new criteria.

Specifically, a SMI where (a) the lender's priority can change, (b) the LTV is in excess of 100% (I would even suggest lowering this to 90% LTV) or (c) where the interests of ALL parties are not aligned should form the new distinction between what is considered "qualified" vs "non-qualified". All "qualified" SMIs should require a Form 1 and all "non-qualified" SMIs under the new definition should require a Form 3.2 (which has been expanded to include the contents of 3.2.1).

I think the 3 risk factors that have been identified as key red flags of potential harm to investors are a great starting point in redefining the actual/inherent/perceived risk of a non-qualified SMI. In fact, a better definition of a non-qualified SMI should be a private mortgage loan which contains any of these 3 risk factors, and not as previously defined (i.e. based on asset class).

Making a simple change like this would lessen the administrative burden that most brokerages are taking issue with, by permitting a wider variety of private deals - beyond strictly residential loans - to utilize the Form 1 rather than the unwieldy Form 3.1 and 3.2.

I am happy to meet in person or by phone to discuss this further if you are interested.

August 8, 2019
Mortgage Brokering Sector
[2019-002] Murray Snedden - MarshallZehr Group Inc.
I still question if "retail" investors should be permitted to participate directly in these types of mortgages. If retail investors are allowed to invest, I am absolutely supportive of additional disclosures. That said, even with the disclosures provided, a solid understanding of the legal, lending, development and construction mechanics involved and the specifics related to the project involved, things are unlikely to unfold as planned. Any investor must be prepared to deal with this eventuality and the potential impacts or options available to maximize the security value available to the various lenders. Suitable institutional and accredited investors have the resources to underwrite, understand and evaluate the risks involved and are prepared to take these risks to obtain the associated risk adjusted return. If an investor needs their attention specifically drawn to the disclosures described, they should likely participate through a structure with a capable professional to manage these investments. Just to clearly state it, in my opinion any institutional or accredited investor should not need these additional disclosures.
August 8, 2019
Mortgage Brokering Sector
[2019-002] David Franklin
You can have the best disclosure forms in the but the problem is that the investors do not read them so the forms do not in most cases have any value to the investing public. The investors rely on their agents in making the investment. The following ins my memo on regulators should protect the public.

August 8, 2019
Mortgage Brokering Sector
[2019-002] Dwight Trafford - Rock Capital Investments Inc.
It is my understanding that the issues involving syndicated mortgages came about mainly because of Fortress. It was made very clear that the investments were risky. There selling proposition was based mainly on the securities of Toronto and other major centres. The issue became the viability of the appraisals. I understand from the news that there was also some inconsistencies with the actual use of funds. Very few brokers going forward would be involved in this type of mortgage, but if they were....it is the issue of who could facilitate them, and how do you regulate and ensure the quality of the appraisal. The Fortress people already had tainted records with the securities commission, and they controlled the appraisals. A recipe for disaster. Greed is a powerful motivator. Personally I feel that the vehicle of syndicated mortgages for development and construction should be outlawed completely. The money that can be made is too rich and therefore the likelihood of fraud is too great.
August 8, 2019
Mortgage Brokering Sector
[2019-002] Derik Rehou - DLC Eagle Group
I think the big black consumer warning box at the beginning of the form 3.2.1. should be changed to say that IT IS A SIGNIFICANTLY RISKIER INVESTMENT... The fact that it says COULD BE is misleading... These investments are riskier period and that "could be" language will be used by some while selling their projects that our projects are safe and others are riskier... Any time you group money for large investments that can potentially have issues there is a greater risk... The consumer investing in these products need to know what's at stake. A savvy investor will already know the risk, this form needs to protect the small investor that is being pressured to move their retirement savings to yield higher returns
August 7, 2019
Mortgage Brokering Sector
[2019-002] VIJAYKUMAR RANA - MORTGAGE DILIGENT LTD
Syndicated Mortgage must set up with Stress Test calculation as we use for other residential mortgage of individuals qualification, and must be capped to minimum income threshold and collateral protection securities for the interest of investors. Individuals who are withdrawing funds from RRSP, LIRA, and other pension plan originated funds must be stopped for Syndicated Mortgage investment used by Developers for their soft cost . There must be fixed time limit and Principal face value amount protection for investors capital is recommended. Alternatively borrowers provide guaranteed paid out annuity to investors.

Thanks and regards,

August 7, 2019
Mortgage Brokering Sector
[2019-002] Sergio Bogani - Privcomm Mortgages
I applaud this effort to better regulate our industry and hope that it creates a more positive outcome than the past experiences that people have had investing in private mortgages. I believe however that the onus on Mortgage Brokers alone is limiting. Given there are many parties that are involved would it not be helpful to also create an insurance product that would be available to this market that would provide the ability for the syndication to be insured against losses by utilizing the already educated group at CMHC that knows far more about underwriting than the average investor and can grant insurance to a syndicated mortgage that the borrower would have to pay in order for their syndicated mortgage to qualify as a mitigated risk investment. This would in effect allow syndicates to better source funding and also would regulate what they propose in terms of deals. It is a monumental undertaking but a more capitalistic approach to reducing risk in this market place as well as increasing the ability to source funding.
In lieu of that however, another potential avenue of safeguards is to have appraisal peer review requirements also in place by AACI group leaders that would in essence validate if the spirit of the appraisal was kept for the mortgage investment proposed. In other words in situations whereby the appraiser is forced to rely on the word of the borrower that certain conditions are met that greatly affect the value of a property, such as; density approvals or easements arranged or any condition that could render the value to be much higher or lower, that in these situations the peer review can make a judgement on whether or not the spirit of 'as is' valuation is kept and suitable for the purposes of financing.
I think that ideas such as these and possibly more could greatly benefit the industry by ensuring that those that are unscrupulous have less opportunity to deceive investors whose intentions are to save for the future and not risk their capital on highly risky investments.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Nick
It's a wise step towards keeping the clients well informed.
If decide to introduce form. It should be simple and, can be accessed and submit online.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Mike Marshall
Syndicated mortgages should not be permitted for those who are working on a commission.
They should have to be managed and guaranteed by a chartered bank or a company with sufficient capital to cover the inevitable claims that will arise in the event of default.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Laura Thompson - RMA
This is great to make sure agents are getting more verification for investors.
My issue is with the syndicates that are not using a agent but using a lawyer and by passing significant notice or verification of risk.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Alex - Broker
I do not thing it is sufficient to provide a disclosure form. Private mortgage lending (and brokering) syndicated or not requires specific knowledge and skills in underwriting and investment placement. Brokers dealing in syndicate or private money in any capacity (on behal of individual investors) ought to have specific licencing/certification to do so in addition to the standard mortgage broker's licence. Just like a realtor requires additional licencing to be a broker or to be a property manager the same should apply here.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Michele HALL - Mortgage Intelligence
I have reviewed the form, and I think it should have a clause that states you should not be investing in the investment : stating who Syndicated mortgages are not for. For example 1) someone who may need access to their capital, 2) someone who is over 65 and can not afford to lose these funds etc . This will make people stop and think before they invest .

August 7, 2019
Mortgage Brokering Sector
[2019-002] Paul Mangion - MOS MortgageOne Solutions Ltd
I agree with the new disclosures and it should be implemented. I do however think the description of a non-qualified syndicated mortgage should change. A standard syndicated mortgage on a simple commercial property with dwellings at less than 75% LTV should not be considered non-qualified. Any commercial or residential construction, development or vacant land should be considered non-qualified. Thanks
August 7, 2019
Mortgage Brokering Sector
[2019-002] Patricia Porretta - Rush Mortgages Inc
This is absolutely necessary and as a Mortgage Agent I personally welcome these changes.

August 7, 2019
Mortgage Brokering Sector
[2019-002] David Strahl - Empirical Capital Corp.
We currently have 3 Forms we have fill out for every syndicated mortgage transaction, Form 3.0 (KYC), Form 3.1 (Suitability Assessment) and Form 3.2 (Investor Disclosure). These forms are lengthy, cumbersome and actually address the 3 points you mentioned in detail. Any additional forms would be punitive to both mortgage brokerages and investors, as the indicators you mentioned do not apply to the vast majority of syndicated mortgage Lenders offering investment opportunities to the public. Lenders spend hours completing these documents, while investors are overloaded with paper. A compromise would be if additional documentation was only required if a Mortgage Lender were dealing with retail investors. If dealing exclusively with designated class (i.e. accredited) investors, I do not believe any additional documentation or disclosure is required. They are sophisticated investors and can glean the risks inherent in any investment opportunity through the already prescribed forms and the Final Underwriting Letter we send them before they make a decision whether to invest.
August 7, 2019
Mortgage Brokering Sector
[2019-002] Bruce Fischer - Fischer Group Inc.
The term "syndicated mortgage" in your example for a condo project or development is miss-leading. Many "syndicated mortgages" are for existing complete and leased out properties where LTV is fixed (only a standard 1st and 2nd mortgage) and secured by a revenue generating property. In such cases, the mortgage is very much more secure and less risky than a development project - which you correctly point out and I believe these 2 types of mortgages should be separated out when it comes to using the term "syndicated mortgages".
August 7, 2019
Date posted Sector Question and response
Mortgage Brokering Sector

Question: This appears to be premature (as your introduction foreshadows) given the markets have been advised that the Ontario Securities Commission is now taking oversight of the mortgage syndication market. Why is this being solicited now before the CSA has issued its anticipated Amendments to National Instrument 45-106 Prospectus Exemptions and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations relating to Syndicated Mortgages?

With respect to the Form 3 Disclosure regime, will that continue to be enforced once the OSC takes oversight? In Annex G of the March 15, 2019, CSA Second Notice and Response to Comments, the OSC recognizes FSRA as having primary oversight for "qualified syndicated mortgages". What is particularly interesting is that the OSC goes on to add: "Accordingly, we are not proposing to require the filing or a report of exempt distribution, to require offering materials to be delivered to the Commission or to subject such materials to the requirements related to statutory rights of action in connection with the distribution of qualified syndicated mortgages under the proposed exemption." Would there not be similar regulatory deference to the OSC with respect Non-Qualifying mortgage syndications? Therefore, would not the Form 3 disclosure regime fall away?

The market really needs clear regulatory coordination!

FSRA response:

Thank you for your question. We are taking your comments into consideration for our final report.

The government is working with FSRA and the OSC on the transfer of SMI’s. The disclosure forms were introduced to protect consumers during the transfer period. Additional details on the disclosure forms will be provided at a later date.

Mortgage Brokering Sector

Question: I am a mortgage agent and I invested in the Mortgage broker's syndicated mortgage for a seniors home in St. Thomas, we were third mortgage and were to get 8% annual interest and Paul Mangion the Mortgage Broker was visiting the site before giving the builder the funds. the $6 million he collected was to finish the seniors home and have it fully rented and to sell the business. the project was not finished (needs close to $6 million to complete all units and kitchen. in receivers hands now and court is trying to sell the building as is. there is a 1st and 2nd mortgage holder before us and it turns out the appraisal was way too high and not accurate so we would not have set up a syndicated mortgage on this property if true values were given. In courts for over a year now and they have a conditional sale. since we are third mortgage looks like we have to sue the appraiser who over valued the property.

Once court decides to sell, for what price we do not know. Builder used $2 million towards other investments he need funds for. he has no money according to Paul Mangion. see attached promotion and appraisal.

what can be done here since my wife and I invested in this project, which I thought was solid. Paul Mangion has arranged for a lawyer to sue the appraiser's E&O insurance for the gross over valuation of property. if real numbers were given we would not have invested in a third syndicated mortgage on the St. Thomas seniors home property.

FSRA response:

Thank you for your submission. Your comments regarding the risks of investing in a syndicated mortgage will be taken it into consideration for our final report.  If you wish to file a complaint please contact FSRA directly at 1-800-668-0128. Please note that FSRA can only review complaints on individuals and/or entities its licensed and has jurisdiction over unless where unlicensed activities are noted.