Mortgage Trust Structure

What is a Mortgage Trust?

Mortgage trusts also be called “mortgage funds” or “mortgage schemes”, as they are registered with ASIC in most cases. It is an investment you can buy “units” in and is operated by a registered professional fund manager like Quantum Funds Management. A mortgage trust is a form of investment that pools money for lending to borrowers secured over a registered mortgage over Land. In return for investing money, the investors in the trust receive a income called a “distribution” from the interest paid by borrowers and bank accounts.

There are generally two types of mortgage trusts:

Pooled

All investors share in income generated from the mortgages
All investors share the income
All investors share the risk associated with all the mortgages in the pool
You can withdraw some or all of your capital at any time subject to liquidity (a notice period is usually required).

Contributory

You (or the fund manager) decide which particular mortgage loan you invest in
The mortgage you are invested in might generate a different return from other mortgages within the fund
You are exposed to the risk of that mortgage only
You can only withdraw your capital when that loan matures.

Mortgage trusts can also be unlisted or listed. Unlisted trusts are not on a public market like the Australian Securities Exchange (ASX). Unlisted trusts are not subject to supervision from a market supervisor like a listed trust, however retail mortgage trusts, being trusts with a Product Disclosure Statement (PDS) are still regulated by the Australian Securities and Investment Commission (ASIC).

ASIC has developed benchmarks and disclosure principles to assist investors to evaluate the risks associated with an investment in a retail mortgage trust. The fund manager must address the benchmarks and disclose against the principles in the PDS and update them regularly for publication on their website.