Personal Finance

Do you invest in a Mortgage Investment Corporation (MIC)?

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[OP]
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Do you invest in a Mortgage Investment Corporation (MIC)?

Hey everyone,

A few of my family members and some friends have told me about these Mortgage Investment Corporations (MICS) and they consistently yield 6-8%.

Is anyone invested in these, if not, why?

They are eligible for TFSA and RRSP accounts, which is a nice bonus.

The MIC i'm looking at (Antrim) has a Loan to Value ratio of <60%. Which means a house worth $100k, they will lend out a maximum of $60k against the house. Also, the majority of the loans are 1st mortgages. There are MICS that have higher 2nd mortgages, but the comes with added risk, but a higher yield at the end of the year. The average mortgage is about $350k and since there is so much demand for lending, they say they are very picky about who they lend to, so the mitigate risk that way.

I was just wondering if any of you had any comments on MICs in general and if you do or don't have a position in this. For my overall portfolio, I would be allocating no more than 20% of my portfolio to it. I'm just weary because these just seem like they're too good to be true. Though, I guess you could consider these MICs like banks, which goes to show how much profit banks make.

Any comments would be appreciated.

edit: I meant to type Antrim*** NOT Atrium
Last edited by jellytime on Nov 27th, 2018 1:02 am, edited 1 time in total.
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If it sounds to good to be true, it is.

And what you’re looking for is premium risk adjusted returns, not just high returns.

Finally, what have these guys figured out that no one seems to have figured out? How high quality can their clients be if they have to go to a 3rd party Lender like these guys vs a Bank or even a credit union?
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[OP]
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TodayHello wrote: If it sounds to good to be true, it is.

And what you’re looking for is premium risk adjusted returns, not just high returns.

Finally, what have these guys figured out that no one seems to have figured out? How high quality can their clients be if they have to go to a 3rd party Lender like these guys vs a Bank or even a credit union?
While I agree with your train of thought, the Loan to Value (LTV) ratio was a reason why I thought it was a good deal. Their LTV is <60%.
If your house is valued at $100k and they only loan you $60k, and let's say you default on your loan, they take the house and sell it. Unless we think the housing market is going to correct 40%, isn't that a relatively safe bet?

edit: With Atrium their average mortgage is only $360k, with some other MICS, they're loans on average are less than $200k. So the loans are relatively low. And they're all 1st mortgages, so you'll get your money first versus if you were doing 2nd mortgages or even 3rd.
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LTV isn’t the only metric used to assess risk. In fact, when you think about it, LTVs that low may actually be indicative of an increased risk profile. The borrowers don’t qualify for more. That means people with low income, unstable employment, or a lack of income verification. All the kinds of people Banks don’t lend to.
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TodayHello wrote: LTV isn’t the only metric used to assess risk. In fact, when you think about it, LTVs that low may actually be indicative of an increased risk profile. The borrowers don’t qualify for more. That means people with low income, unstable employment, or a lack of income verification. All the kinds of people Banks don’t lend to.
Are you only wary only about the characteristics of a lender or that you don't believe the housing market is good enough collateral?

Because the way I see it, if I can get an Asset, like a house at a 40% discount from the rest of the market (provided LTV is 60%), isn't that a deal? The lender had to come up with the other 40% and if they default, they're the ones who are actually take the hit. The MIC gets a house at a 40% discount and I feel like in our markets, selling it wouldn't be an issue, especially at that discount.
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jellytime wrote:
...

The MIC i'm looking at (Atrium) has a Loan to Value ratio of <60%. Which means a house worth $100k, they will lend out a maximum of $60k against the house. Also, the majority of the loans are 1st mortgages. There are MICS that have higher 2nd mortgages, but the comes with added risk, but a higher yield at the end of the year. The average mortgage is about $350k and since there is so much demand for lending, they say they are very picky about who they lend to, so the mitigate risk that way.
...
Where are you getting the average mortgage of about $350K? From Atrium's Q3 Shareholder Report, it states, "As of September 30, 2018, the average outstanding mortgage balance was $3.3 million (December 31, 2017 – $2.9 million), and the median outstanding mortgage balance was $1.0 million (December 31, 2017 – $0.8 million). "

http://www.sedarpush.com/pdfdocs/Atrium ... Report.pdf
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skeet50 wrote: Where are you getting the average mortgage of about $350K? From Atrium's Q3 Shareholder Report, it states, "As of September 30, 2018, the average outstanding mortgage balance was $3.3 million (December 31, 2017 – $2.9 million), and the median outstanding mortgage balance was $1.0 million (December 31, 2017 – $0.8 million). "

http://www.sedarpush.com/pdfdocs/Atrium ... Report.pdf
Sorry, I made a typo. The one I was looking at is called Antrim. NOT Atrium. Sorry, I was looking at a few and got them mixed up. My friend sent me a repot and it listed the "highlights"

The MIC is "Antrim Balanced Mortgage Fund Ltd."
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Highlights
 At the end of FY2018 (June 30, 2018), Antrim Balanced Mortgage
Fund Ltd. (“fund”, “Antrim”) reported a 22% YOY increase in
portfolio size, from $393 million to $478 million. As of October 1,
2018, mortgage receivables were $522 million, beating
management’s 2018 calendar year end portfolio forecast of $450
million.

 Despite a significant increase in portfolio size, we believe the fund
has slightly lowered its risk exposure. The focus continues to be on
first mortgages on owner-occupied single-family houses in the
Greater Vancouver area.

 The average loan size decreased YoY from $401k to $360k. The
percentage of first mortgages increased YoY from 76.7% to 77.4%.

 Approximately 98% of the mortgages were secured by residential
properties at the end of FY2018, versus 95% at the end of FY2017.

 Management investment in the fund increased $11.3 million to
$14.8 million since our previous report in October 2017.

 FY2018 dividend yields increased YOY from 5.77% - 6.77% to
5.78% - 6.78%, depending on the type of preferred shares held by
investors.

 We believe the weakness in Vancouver’s real estate sales is likely
to impact originations of B.C. focused MICs. This is expected to
be partially offset by the tighter lending policies of the banks,
which has been driving more borrowers to MICs. Increasing
interest rates will also benefit Antrim.

 We believe Antrim’s low LTV, and high percentage of first
mortgages, puts them in a relatively low risk category.


From the report my friend gave me. I'm probably going to put money into this one and was considering the Capital Direct, which is the one "Bill Good" recommends, but that one has a lot of 2nd mortgage, around 60% second mortgages, the yield is better, but the risk seems higher to me...
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jellytime wrote: Are you only wary only about the characteristics of a lender or that you don't believe the housing market is good enough collateral?

Because the way I see it, if I can get an Asset, like a house at a 40% discount from the rest of the market (provided LTV is 60%), isn't that a deal? The lender had to come up with the other 40% and if they default, they're the ones who are actually take the hit. The MIC gets a house at a 40% discount and I feel like in our markets, selling it wouldn't be an issue, especially at that discount.
Indeed, on a default tomorrow there will be little difficulty realizing the MIC’s money back.

However, the risk is that in a future market where values have dropped 20%, 30%, or even 40% then the MIC may have to sit on the property for months trying to sell it. Even with only a 20% drop a property may take a long time to sell if there are few buyers in the market looking to buy.

Additionally, your MIC is concentrated heavily in the Vancouver market. This is good when times are good, but as above if things get bad then their undiversified portfolio could be problematic.

Finally, to really assess the quality of the portfolio you’d need to know things like beacon scores, debt ratios, whether income is verifiable, etc. They don’t seem to talk about that in their highlights. And as another poster pointed out these are probably all B clients. When times are good there’s no appreciable difference in A vs B, however, if times change and get tough then the B’s tend to perform much more poorly than the A’s meaning that the MIC will have a worse delinquency rate and a worse foreclosure rate compared to a bank.

Currently MICs are Provincially regulated which is typically not as rigorous as being Federally regulated by OSFI. The only MIC that’s OSFI regulated right now is MCAN and they’re a publicly traded company. This raises transparency and accountability. They’re also diversified with mortgages spread out further around Canada.

If you’re intent on investing you should either hold off until you understand this market better, or you should limit your investment to just 5% - 10% of your portfolio while you become more familiar with the industry.
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Good post CanadianLurker.

Here’s another gut check. What kind of mortgage rates do they have to charge in order to achieve those 6-8% yields? Probably well north of 12-14% considering their cost of funds, overhead, etc. So who takes mortgages at 12-14%? High risk borrowers. People with income verification issues. Flightly investors from overseas like China (*cough**cough* Vancouver). People who the Banks won’t touch.

Which is fine. Higher risk higher reward. He question is, is the reward worth the risk? You seem to think so based on the portfolios low-LTV. To me, that’s not enough.
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This is an equity lender for self-employed folks. They accept stated income. They only use beacon to determine LTV. They will look at mortgages with beacons less than 500 so that is a pretty crappy score. So basically, you have someone who is self-employed who cannot verify their income and owns a house and needs money ASAP. They even claim on their website that they can close in days, not weeks.

It is certainly a niche market that they lend in. Ignore the average loan size of $360k as that tells you nothing. Pay attention to the first mortgages in the Greater Vancouver Area where average home prices are in excess of $1 mil. Those numbers don't make sense and if you look at the distribution of the mortgages on its website you will see why. Asset Allocation is 75% first mortgages, 25% second mortgages.
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OP I personally don't like the product from Antrim. I have looked at the three different 'Balanced funds' they offer.

as an alternative 'private MIC's there are a few others for you to look at

BC based Vanguard Mortgage Investments

RRSP, TFSA & RRESP eligible

http://vanguardinvestment.ca/

http://vanguardinvestment.ca/investors/

for AB, BC, Atlantic & Ont

Capitlal Direct, weighted average LTV 53.4%

http://www.incometrustone.com/fund-fact-sheet.php
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Arn't these similar products that got us into the '08 correction? Mortgage backed derivatives? Those who do not learn from history are doomed to repeat it... I'm sure in 2007 everyone said that it was impossible for a 40% correction in real estate...
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kr0zet wrote: Arn't these similar products that got us into the '08 correction? Mortgage backed derivatives? Those who do not learn from history are doomed to repeat it... I'm sure in 2007 everyone said that it was impossible for a 40% correction in real estate...
absolutely

what other choices are available that you would suggest to the OP?
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porticoman wrote: absolutely

what other choices are available that you would suggest to the OP?
Looking for 6% - 8% return?
How about Laurentian Bank? Yield is 6.3% and if you think the federal government is going to let a bank go under, a Quebec bank at that then give your head a shake. LOL

Or how about BCE yielding 5.3%?

Want a derivative play? How about FTN, its yield is 17% and been paying out for years.

How about CWX? Yielding 12% after getting slaughtered with lumber companies. They have diversified into more lumber sku's (pressure treated...) as well as expanding into the USA. Been paying out for over a decade.

Slate Office REIT is paying out 12% @ an 80% payout ratio.

Supremex is at almost 12% @ a 75% payout ratio.

ALA is paying out 15% but may not be safe...

Mix and match a few to limit risk but keep a higher dividend.
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kr0zet wrote: Arn't these similar products that got us into the '08 correction? Mortgage backed derivatives? Those who do not learn from history are doomed to repeat it... I'm sure in 2007 everyone said that it was impossible for a 40% correction in real estate...
Yes and No.

Yes, in the it’s largely centred on B clients with low credit scores, and/or no income verification, and/or highly variable income, etc. And yes, weight is given to the lower LTV as a “comforting” factor that “mitigates” the higher risk of the B client profile.

However, it’s NOT the same in that the structures are much simpler and far more transparent. This isn’t Wall/Bay Street slicing and dicing up pools of mortgages into complex derivative based financial instruments.

Instead, simplistically, a MIC is a one trick pony that lends out mortgages with money brought in by investors. There are no Investment Banks repackaging things up. It’s very much like a small town Credit Union or a Co-Op where the investors are the owners with a symbiotic relationship. There should be direct traceability between the investment pool and the mortgages that make up the pool - no getting lost in an ocean of complicated paperwork and legal structures like in the financial crisis.

And because if the tax structure of a MIC, 100% of profit must be paid out yearly to the the owner’s/investors. So while management may be able to play around with expenses the rest of the financials are all pretty straightforward: money comes in as an investment, loaned out as a mortgage, payments taken in, expenses paid out, and profits distributed.

A lot less to go wrong. Could still be very risky. Could still underperform. Could still have some bad eggs. Can get beat up badly in a real estate market correction. But not really in the same league as the financial crisis.
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CanadianLurker wrote: Yes and No.

Yes, in the it’s largely centred on B clients with low credit scores, and/or no income verification, and/or highly variable income, etc. And yes, weight is given to the lower LTV as a “comforting” factor that “mitigates” the higher risk of the B client profile.

However, it’s NOT the same in that the structures are much simpler and far more transparent. This isn’t Wall/Bay Street slicing and dicing up pools of mortgages into complex derivative based financial instruments.

Instead, simplistically, a MIC is a one trick pony that lends out mortgages with money brought in by investors. There are no Investment Banks repackaging things up. It’s very much like a small town Credit Union or a Co-Op where the investors are the owners with a symbiotic relationship. There should be direct traceability between the investment pool and the mortgages that make up the pool - no getting lost in an ocean of complicated paperwork and legal structures like in the financial crisis.

And because if the tax structure of a MIC, 100% of profit must be paid out yearly to the the owner’s/investors. So while management may be able to play around with expenses the rest of the financials are all pretty straightforward: money comes in as an investment, loaned out as a mortgage, payments taken in, expenses paid out, and profits distributed.

A lot less to go wrong. Could still be very risky. Could still underperform. Could still have some bad eggs. Can get beat up badly in a real estate market correction. But not really in the same league as the financial crisis.
Thanks for the insight... Still not for me.
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jellytime wrote: Highlights

 The average loan size decreased YoY from $401k to $360k. The
percentage of first mortgages increased YoY from 76.7% to 77.4%.

Which means the % of second mortgages is 22.6%, which in a market fall is a significant portion of the portfolio at much higher risk.
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kr0zet wrote: Thanks for the insight... Still not for me.
Indeed, if one is looking for something more than a high yield savings account or a GIC then a MIC should be a distant choice after first exploring a few other options.
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Hey everyone,

Thanks so much for the detailed feedback and your opinions. I really do appreciate it and I like the fact that i'm not just being told it's a good investment like my friends and family have been telling me.

Which is why I wanted to get your opinion as I do value your feedback. I do think BC is due for a pretty major correction and you guys have given me some insight on other factors to look at, i'll be looking at those to help keep me better informed.

I'm probably still going to invest into it, but maybe cut back to 10% instead of the original 20% I was going to. I'm okay with some level of risk. I'll throw the rest of that money into RBC maybe.

Thanks again!!!

ps. i'll update this thread if I lose my entire position... lol hopefully not.

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