ASIC pulls up mortgage schemes

The Australian Securities and Investments Commission (ASIC) has slapped an interim stop order on three mortgage scheme prospectuses, forcing the companies to lodge supplementary prospectuses with further disclosure.

The Willis and Bowring Mortgage Fund, CKM Mortgage Trust and Obelisk Mortgage Trust prospectuses were given the stop order on 26 March, 27 March and 6 April 2001 respectively, after ASIC became concerned. The industry watchdog believed the documents were likely to give investors a false impression of the level of borrower assessment undertaken by the operators before approving loans.

ASIC Managed Investments national team director Darren McShane says although the funds did include measures taken to reduce the likelihood of borrower default, further disclosure was necessary.

"We are not saying they [the operators] have to assess borrowers more, but if they don't then they have to say that," he says.

ASIC's concerns in the Willis and CKM funds were with discrepancies between the prospectus's claims about the operator's consideration of a borrowers capability to repay the loan, and what occurred in practice. In the Obelisk fund, ASIC believed investors could be under the impression the operator would approve loans only after an investigating accountants report, which were not always obtained.

McShane says the fund's supplementary prospectuses, lodged about a week after the stop orders were imposed, address ASIC's concerns. The prospectuses, now made up of the two documents, the original and additional, are effective.

"There is now accurate disclosure about the assessment process," he says.

McShane says the funds discrepancies were picked up through ASIC's ongoing surveillance and monitoring.

"These funds are not related to the run out schemes, they are regulated under the Managed Investments Act. But mortgage is one of the areas we are looking at very closely," he says.