Investing in a Mortgage Investment Corporation (MIC) is a great way to gain exposure to Canada’s real estate market. But how do you evaluate whether a MIC is well managed? One way is to understand the private mortgage adjudication and due diligence process, which plays a key role in minimizing investor risk.
Elizabeth Wood, Executive VP of CMI Financial Group, shares insights into CMI’s comprehensive mortgage selection process and how it plays a pivotal role in creating strong, diversified MIC funds.
As a private lender, how does your mortgage adjudication process differ from that of traditional bank lenders?
Unlike traditional lenders who are restricted to specific debt ceilings and beacon scores in deciding whether or not to fund a mortgage, we have much more flexibility. We evaluate loan-to-value (LTV), income, location and borrower profile, among other variables, before we render a decision. More importantly, we work closely with the submitting broker to understand the borrower’s unique circumstances and the story behind the numbers. This collaborative, common sense approach gives us a more complete picture of the opportunity and risk profile.
What are the major considerations that drive funding decisions?
Each case is unique and no two files are treated exactly the same. Any given variable can exceed a lending threshold but, when taken into consideration with other elements, it may be acceptable. For example, lower income may be acceptable at a 60% LTV but becomes a deal breaker at 85%. Our team looks at the files holistically, so each variable’s maximum threshold is considered alongside the strength of other factors.
Please walk us through CMI’s mortgage approval process. What are the critical steps from deal submission to credit decision?
Brokers submit electronic applications to us via various third-party platforms. These files are first reviewed by our underwriting team, who seek out additional clarification and collect the supporting documentation needed to make an informed decision. The deal is then presented to the Credit Review team who carefully consider all factors and their impacts before deciding whether to accept or reject the deal. If accepted, the team sets the mortgage terms. Once they are accepted, a commitment is issued listing the required conditions for closing and the funding team begins the due diligence process.
How do you balance the needs and interests of borrowers and investors?
Our strength is in our strong partnerships with brokers across the country. Their role is to ensure the mortgage suits their borrower, which allows CMI to focus on providing high-quality, well-underwritten files. We also carry out suitability verification to ensure that borrowers are placed in mortgages appropriate to their current situation. Our due diligence process and commitment to sound lending practices ensure our investors have confidence that their investment is in expert hands.
What role does technology play in the adjudication process?
We have an extensive, technology-supported underwriting process. All files are submitted and maintained in electronic format which allows us to update them in real time, ensuring all parties have access to the most up-to-date information available. It also enables an almost completely paperless end-to-end process. Our industry-leading proprietary software is complemented by open banking partnerships that remove the need to collect physical banking and income documents.
CMI raises funds from investors in two ways – through its whole loan program and through its MIC funds. Are there any differences in the mortgage selection process between these two platforms?
The mortgage adjudication process is the same for both programs. The only difference is in portfolio allocation. Mortgages for the MICs are evaluated by our Credit Committee which focuses on the weighted average impact of a particular mortgage across the pool. Whole loan investors, in contrast, have a dedicated Investment Account Manager, whose sole focus is to ensure the suitability of the individual investment to the investor.
What sets CMI apart from other players in the MIC space?
While the majority of MICs are Ontario-based – predominantly in the Greater Toronto Area – CMI is a national lender. We are also one of the only private lenders that has a comprehensive, in-house mortgage origination, adjudication, underwriting and administration program. This provides greater control and helps keep expenses low, allowing us to pass along higher yields to investors. Our extensive broker network and deeply experienced underwriting and funding teams ensure that only the highest quality investments are selected for CMI MICs, mitigating risk for our investors.
CMI offers three distinct MIC funds designed to meet the needs of investors across a broad range of investor profiles. Learn more about the CMI MIC family of funds.