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FSCO Taking a Stand on Syndicated Mortgages
The Financial Services Commission of Ontario (FSCO) is taking action on unlawful syndicated mortgage practices.
The Superintendent of Financial Services recently revoked the mortgage broker licenses of five companies and individuals after an investigation into syndicated mortgage investment pools.
On July 1, 2018, FSCO made amendments to the regulation dealing with non-qualified syndicated mortgages, placing expanding obligations on mortgage brokerages.
As of fall 2018, FSCO announced they are conducting desk reviews and/or on-site examinations of mortgage brokerages that “deal in non-qualified syndicated mortgages to ensure their P&Ps fully comply with all MBLAA requirements.”
According to FSCO, a non-qualified syndicated mortgage is a syndicated mortgage that does not meet the definition of a qualified syndicated mortgage pursuant to subsection 1 (2) of O. Reg. 188/08 and that is not incurred for the construction or development of property pursuant to subsection 1(3) of O. Reg. 188/08.
According to the subsections, a qualified syndicated mortgage is defined as:
- Negotiated or arranged through a mortgage brokerage.
- It secures a debt obligation on property that,
- is used primarily for residential purposes,
- includes no more than a total of four units, and
- if used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes.
- At the time the syndicated mortgage is arranged, the amount of the debt it secures, together with all other debt secured by mortgages on the property that have priority over, or the same priority as, the syndicated mortgage, does not exceed 90 per cent of the fair market value of the property relating to the mortgage, excluding any value that may be attributed to proposed or pending development of the property.
- It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage.
- The rate of interest payable under it is equal to the rate of interest payable under the debt obligation. O. Reg. 96/18, s. 1 (2).
View the full regulation here: https://www.ontario.ca/laws/regulation/080188#BK1
The message from FSCO is clear: mortgage brokerages that do not follow the syndicated mortgage guidelines will have to face the consequences.
In the cases referenced above, that consequence was license revocation. For brokers and agents who were sponsored by the brokerages involved, their licenses were considered ‘inactive’ until they were sponsored by another brokerage that was considered ‘active’ and ‘authorized to sell.’
As the industry is getting behind better organization and regulation, be sure your brokerage is following the rules. See the standards at the FSCO website: http://www.fsco.gov.on.ca/en/mortgage/bulletins/Pages/m-02-18.aspx
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