Syndicated mortgage market ‘on notice’: watchdog
canadian securities regulators are proposing more stringent rules for the selling of controversial syndicated mortgages, in which two or more investors are lenders in A debt obligation secured by the same mortgage. improved investor protection is the primary aim of the changes proposed by the canadian securities administrators, which will remove exemptions that allowed the investments to be sold without registering with regulators or filing A detailed prospectus in several jurisdictions, including ontario. “these offerings potentially raise investor protection concerns, particularly when sold to retail investors,” the CSA said thursday, noting that the new rules would harmonize the regulation of syndicated mortgages across the country.
eealer registration with regulators would be required under the new rules even if exemptions are obtained — such as A so-called offering memorandum exemption — that allow syndicated mortgages to be sold to retail investors. in addition, there would be stepped-up disclosure obligations to prospective purchasers, as well as A requirement that property appraisals are prepared by A qualified appraiser who is independent from the issuer.
“what we have proposed puts the market on notice,” said huston poke, director of ontario securities commission’s corporate finance branch.
the CSA is conducting A 90day consultation on its proposed changes, which is expected to draw comments and potentially objections from industry players. nothing is inherently wrong with syndicated mortgages, but they CAN be risky when they are used to raise seed financing for real estate developments that may be years from completion, the CSA said. they are also sometimes sold based on the projected value of the completed development, and may not be fully secured because the amount of the loan may “significantly ” exceed the fair value of the land, according to the umbrella group for canada’s provincial securities regulators.
in addition, A syndicated mortgage CAN be subordinate to future financings, such as construction financing, and may be offered by issuers with no source of income, meaning payments of ongoing interest is dependent on future financing or reserves from the principal advanced.