Province's oversight change will make it harder to police syndicated mortgages, expert says

Transferring oversight of syndicated mortgages to the Ontario Securities Commission (OSC) from the Financial Services Commission of Ontario (FSCO) won't necessarilyimprove protections forinvestors, says the province's former registrar under the Mortgage Brokers' Act.

"They won't deal with the risks involved with these individual investors," said Bill Vasiliou, who's now a certified fraud examiner."They're not going to be policing the source of the funds."

Last week,CBC News reported on a case involving more than120 Chinese investorsfrom the Greater Toronto area who had not recouped their nearly $9 millionin syndicated mortgage investments.

After being convinced to invest by a trusted friend, they later learned the developer they were investing with was a convicted fraudster and the properties had a second mortgage.

Syndicated mortgages are legal investments, in which multiple private investors lend money to a borrower for a mortgage on aproperty development. Syndicated mortgages have boomed in the last few years with sales worth$6 billionin 2015.

• 120 investors say almost $9 million dollars of their money may be gone
• Former registrar says FSCOlacks expertise to regulate syndicated mortgages

The Ministry of Finance told CBC News ahead of last Thursday's budgetthatthe province was transferring regulatory oversight of syndicated mortgages investments to the OSC over a period of time.Vasiliouwas in charge of regulation of mortgage brokers, brokerages and other financial institutions in the province for 16 years in the1980sand1990s.

...it would make it easier for those who are looking to deceive the public, because now you have two groups looking at it- Bill Vasiliou, fraud expert

Hesaidthe OSC will only reviewfor approvala borrower's offering memorandum, thedocument that outlines the objectives, risks and terms of the investment.

But the commission would have to do much more to ensure investors are protected, Vasiliou said.

"They'd have to be digging into that offering memorandum: 'Show me the appraisal.Show me the land value.What did you actually pay for this? How many mortgages are on there already? How many mortgages do you intend to have on there? What does this mean, that you're raising this money for soft costs?'" said Vasiliou.

2 levels of regulation makes it easier to deceive

A reportcommissioned by the province last year recommended replacing the FSCO, which regulates the insurance sector, pension plans, loan and trust companies, credit unions and the mortgage brokering sector. It criticized FSCO's policing of services like syndicated mortgages, saying "there are those who feel the regulator has not applied adequate scrutiny."

The FSCO willcontinue to regulatethe insurance sector, pension plans and mortgage brokers. But the OSC will now regulate the syndicated mortgages sold by mortgage agents.

That concerns Vasiliou.

"It will make it more difficult for the legitimate brokers and syndicators who are looking for financing, and it would make it easier for those who are looking to deceive the public, because now you have two groups looking at it."

In a statement to CBC News, a spokesperson for OSC said:"Like our government, we share concerns that some investors may not fully understand all of the risks and uncertainties involved with syndicated mortgages. We will work with our government to implement changes to the oversight of these products."