FSCO warns about some syndicated mortgages

Investors should be careful when choosing syndicated mortgage investments, according to FSCO.

Don’t be fooled by the big promises of high rates of returns from syndicated mortgage investments. That is the warning from The Financial Services Commission of Ontario (FSCO) as a number of unregulated and unlicensed operators are trying to capitalize on eager investors wanting to get into this investment type.

“The Financial Services Commission of Ontario (FSCO) is warning consumers that it has received complaints about some websites promoting syndicated mortgage investments,” an official release from FSCO states. “The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.”

Many operators are using creative marketing terms to attract interested investors.“These websites may refer to the investments as ‘pooled mortgage investments’ or ‘principal secured investments’,” FSCO states. “These websites, along with their online ads, may guarantee high rates of return, secured by real estate, and claim to be RRSP and LIRA eligible.”

The commission also advises purchasers of syndicated mortgages to have a legal professional look over these types of investments. “Consumers should also be aware that all mortgage brokerages, brokers and agents in Ontario are required to disclose the material risks of any mortgage investment to investors in writing and in plain language,” FSCO says. “Investors should ensure they receive this disclosure and should carefully review it, ideally alongside independent legal advice, before making an investment or lending decision.”

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COMMENTS

  • by Neil Murphy 2015-02-11 6:41:31 PM

    If it sounds too good to be true, than someone is describing it too well!
    Thank you for this article. You help clarify some misleading tactics that are occurring in the marketplace. Syndicated mortgage products paying 8% return is a riskier investment than a GIC. Any advisor who tells an investor that the syndicated mortgage is highly safe or guaranteed is not disclosing the true facts.
    Investments by themselves are neither good nor bad (well maybe after the fact…). You take on a particular risk and expect to be paid accordingly. The real question isn’t whether the syndicated mortgage is secure, but is if you are being compensated adequately for the risk you take.
    I look at each project and view its risk kind of like a stock. Earning 8-13% is in line with stock market returns. It’s paramount to educate the purchaser that you are buying a high yield instrument that needs to fit into the portfolio. It has a low correlation to most asset classes being held so should help reduce risk if used properly.
    The ‘secure’ part, or mortgage, is critical to ensuring recovery when things go sideways. Without this you would simply be an equity investor in a piece of land with potential.
    Neil Murphy
    The Synd
    http://thesynd.com/

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