In the wake of the 2008 financial crisis many
Canadians turned to alternative investment strategies,
and more specifically private mortgage investments,
which offered attractive risk-adjusted returns and a
low correlation to public financial markets.
The private mortgage market has become a multi-billion dollar industry in Canada and is characterized by a
wide range of activity ranging from individuals or syndicates
of investors funding specific mortgages to professionally
managed mortgage funds that pool investor capital.
The concept of a mortgage is relatively simple.
It is the conveyance of an interest in real property
through registration of a charge on title in favour of a
creditor. A mortgage is, by law, a security placed on
property. It would follow that regulation of mortgage
investments would be the domain of the Ontario
Securities Commission (OSC) and the other provincial
securities regulators, but this is not always the case.
The OSC’s role is limited to the regulation of
pooled mortgage investment entities (MIEs), more
commonly referred to as mortgage funds. Mortgage
syndication is considered a mortgage brokering activity
and as such it is regulated by the Financial Services
Commission of Ontario (FSCO) through the Mortgage
Brokerages Lenders and Administrators Act, 2006
(MBLAA) which came into effect on July 1, 2008.
A person or company that is licensed under the MBLAA
is exempt from the requirement to be licensed as a
dealer under the Securities Act (Ontario) and to file
a prospectus when trading in syndicated mortgages.
As I was writing this article I received an email from a
mortgage broker with the subject line: “RRSP-Eligible
Chief Operating Officer
Regulation of Mortgage Investments:
Who has it right - FSCO or the OSC?
By Jonah Bonn