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The MIC Market

1 February 2019

Mortgage Market Events

MICs have been seeing dramatic growth over the last several years as investors search for return and capital preservation. According to a recent report by the Bank of Canada (Residential Mortgage Market in Canada – A Primer- Financial System Review), alternative sources of capital including MICs make up approximately 2.6% of the residential mortgage debt outstanding in Canada.

Due to increased government regulation and CMHC tightening lending policies, dramatic changes to the underwriting procedures at the banks have created more room for the alternative mortgage lending market to grow and continue to eat into the traditional banks’ market share.

The mortgage broker channel is growing in volume for MICs as the first-time home buyer, foreign buyer, self-employed market sector is facing new challenges pushing through the ever-increasing roadblocks placed by traditional banks. According to a report published by Mortgage Professionals Canada, mortgage credit across Canada has sharply slowed down compared to previous years. The year-over-year growth rate was a mere 4.5%, down from 6.2% a year earlier. This creates a perfect storm for MIC managers having a greater selection of mortgage opportunities to select from.

Increased government scrutiny has led both brokers and borrowers to search for alternative lending means. Brokers have also been filtered out of the large institutions as some banks exit the broker channel to focus on ‘in house’ originations.

The CMI MIC has been able to strike a balance between cash-in and cash-out while providing it’s shareholders strong yields supported by secure assets through sound management practices.

Growth Opportunities

CMI continues to be open to markets outside of its geographic niche of Eastern Ontario but remains focused within Ontario. The small-town niche that CMI primarily services continues to be increasing in opportunity as banks avoid these areas, and as the fund grows, this will continue to be a focus for lending.

With an increasing number of Canadians running out of financing options, alternative lenders like CMI MIC provide a lifeline for borrowers while increasing opportunities for participating investors. Approximately 49% of outstanding mortgages were uninsured at the end of 2017, up from 36% five years ago. According to research from CIBC last year, MICs are likely to continue eating up an increasing number of transaction volume in Canada.

Quick Guide to Selecting the Right MIC

Whether an investor’s strategy is wealth accumulation or wealth preservation, a MIC can be a key piece in their portfolio. The advantages of investing in a MIC are numerous but selecting the right MIC for you is not as simple as comparing the rates of ROI.

Consider the following additional evaluation methods:

  1. When and how are dividends distributed to shareholders?
    Not all MICs issue dividends on the same schedule (monthly, quarterly, annually).
  2. How often does the MIC report to shareholders on portfolio performance?
    Are performance reports readily available and released on a regular basis?
  3. Which housing markets are being invested in and what types of mortgages your money is being lent out to.
    Review the housing sectors as well as the geographic regions comprising the portfolio.
  4. How do the redemption periods work if you need to withdraw your investment?
    Review the subscription agreement to understand this policy in detail.
  5. Is the MIC’s ROI steadily increasing and showing stability or is it fluctuating?
    Look for a MIC that has stability in their annual ROI.

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