Mortgage schemes fail as ASIC cracks down.

With the October deadline for unregulated mortgage investment schemes fast approaching, the Australian Securities and Investment Commission (ASIC) says there are still $230 million worth of defaulting first mortgage loans in existence.

The problem seems to be particularly hard hitting in Queensland where Gold Coast investors, including many retirees, stand to lose money in the impending defaulting schemes.

Robbins Watsons Solicitors managing partner Andrew Smyth says mortgage lending schemes involve solicitors acting like a bank and amalgamating people wishing to invest with a group or individual looking to borrow.

The lending process is then usually done through a mortgage arrangement. Smyth says the schemes are all secured against real estate, and no more than 65 per cent of the evaluated price can be lent.

In the past solicitors have been able to offer the investing schemes as they were exempt from compliance, but in 1999 ASIC amended the Managed Investment Act and announced the 31 October 2001 deadline for all unregulated schemes to be wound up.

Smyth, whose group has not been involved in the schemes, says a number of the mortgage lending schemes go under each year however the deadline could see a large increase.

"Almost 70 per cent of Queensland schemes are in default," he says.

Problems surrounding the schemes can be attributed in part to the real estate industry, with some of the investment values different to the initial property valuations as well as the fluctuations of the property market. But Smyth says one key area is the viability of the company's borrowing money and the level of research into these in the beginning.

Since the regulating amendment Smyth says 90 per cent of solicitor firms who had offered the mortgage lending schemes have dropped out.