Changes to syndicated mortgage transactions take effect July 1, 2018

The Government of Ontario has made regulatory amendments to Ontario Regulation (O. Reg.) 188/08 Mortgage Brokerages Standards of Practice [New Window] under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) [New Window] that affect non-qualified syndicated mortgages.

 

Under the MBLAA, mortgage brokerages are already required to take reasonable steps to ensure that a mortgage or an investment in a mortgage is suitable for a client (i.e., borrower, lender or investor) based on the needs and circumstances of the client. Brokerages are also required to provide clients with certain disclosures, including written disclosure of the material risks of a mortgage or investment in a mortgage.

 

As of July 1, 2018, mortgage brokerages that deal with non-qualified syndicated mortgage transactions will have to comply with expanded requirements.

 

What is a non-qualified syndicated mortgage?

 

A non-qualified syndicated mortgage is generally a more complex, higher risk product that may not be suitable for the average investor. Non-qualified syndicated mortgages are all syndicated mortgages that do not meet the regulatory definition of a qualified syndicated mortgage.

 

What is a qualified syndicated mortgage?

 

As defined in the amended regulation [New Window], as of July 1, 2018, a qualified syndicated mortgage is a syndicated mortgage that meets all of the following criteria:

 

  1. It is negotiated or arranged through a mortgage brokerage.
  2. It secures a debt obligation on property that,
  1. is used primarily for residential purposes,
  2. includes no more than a total of four units, and
  3. if used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes.
  1. 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.
  2. It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage.
  3. The rate of interest payable under it is equal to the rate of interest payable under the debt obligation.

(3) A syndicated mortgage that secures a debt obligation incurred for the construction or development of property is not a qualified syndicated mortgage.  

 

What is changing?

 

As of July 1, 2018, mortgage brokerages that deal with non-qualified syndicated mortgage transactions will be required to:

 

  • Collect and document specific information related to a potential investor’s or lender’s financial circumstances, needs, objectives, risk tolerance and level of financial and investment experience using a new FSCO form.
  • Undertake and document a suitability assessment, using specific criteria, for each potential investor or lender using a new FSCO form.
  • Collect and document expanded disclosure information using a new FSCO form. This includes information regarding the property appraisal and, in the case where the borrower is not an individual, the borrower’s financial statements.
  • Observe a $60,000 limit on non-qualified syndicated mortgage investments over a 12-month period for investors or lenders who are not part of a ‘designated’ class of investors and lenders. The regulation defines the designated classes of investors and lenders as those that have already met higher income and asset tests. See the amended regulation [New Window] for a full description of the designated classes.
  • Report written complaints received by the brokerage related to non-qualified syndicated mortgages to FSCO’s Superintendent of Financial Services within 10 business days of receiving the complaint.

Where can I find the new FSCO forms?

 

The new forms are available for download from FSCO’s Forms Directory, and include:

 

  • Form 3.0 – Investor/Lender Information for Investor/Lender in a Non-qualified Syndicated Mortgage
  • Form 3.1 – Suitability Assessment for Investor/Lender in a Non-qualified Syndicated Mortgage
  • Form 3.2 – Disclosure Statement for Investor/Lender in a Non-qualified Syndicated Mortgage. 

For more information, please review the related Bulletin, Frequently Asked Questions and Checklists.

 
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