(August 30 – 14:35 ET) – The British Columbia Securities Commission is tightening the rules for the sale of syndicated mortgages to provide greater protection for average investors.

The commission is limiting the exemptions available in the Securities Act that allow the sale of syndicated mortgages without a prospectus. Syndicated mortgages are private mortgages sold to a number of investors, often utilising a trust. The change takes effect September 1. An exemption will remain for non-syndicated mortgages.

“Syndicated mortgages are a risky and complex form of investment that may not be suitable for the average investor,” said Doug Hyndman, BC Securities Commission chairman. “This change will prevent companies from selling these high-risk mortgage ventures to the public without providing adequate disclosure.”

Under the new rules, anyone selling a syndicated mortgage to retail investors will have to provide disclosure through a prospectus or offering memorandum. A prospectus is a legal document that completely describes the characteristics and risks of securities offered for sale to the public. It provides information concerning the company’s operations, finances, management and the purpose and risks of the offering. An offering memorandum is a simpler but still comprehensive form of disclosure.

An exemption will still be available to allow mortgage brokers to sell “qualified syndicated mortgages” without a prospectus or offering memorandum. However, this exemption can only be used for residential property that is not under construction and that contains no more than four dwelling units. Mortgage brokers will also be required to provide investors with a new mortgage disclosure form.

Although the new rules take effect Sept 1, in response to comments from the mortgage industry, the BCSC is allowing a transition period for the continued sale of syndicated mortgages until Sept. 30, 2001.

During the transition period, mortgage brokers who entered into contracts for syndicated mortgages prior to August 14 will be permitted to complete the raising of funds. However, the BCSC requires the broker to meet certain requirements including providing potential investors with the following written warning about the risk of syndicated mortgages.
-IE Staff