MICs thriving in a low-yield investment landscape

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With the continuing low yield environment, mortgage investment corporations have seen dramatic growth over the last couple years as investors search for return and capital preservation, says one mortgage investment analyst.

“Capital sourcing by many established MICs has appeared to be steadily reliable and available in the current environment,” says Michael Graves, manager of marketing and communications with W.A. Robinson Asset Management Ltd. and Pillar Financial Services Inc.

While the Bank of Canada rate is anticipated by many to remain at or near all-time lows – in addition to the low yield environment – a general slowing of the economy appears to be persistent going into 2016.

“On the lending side of the coin,” Graves told MBN, “due to increased regulation and tightening by CMHC resulting in dramatic changes to underwriting procedures for the banks, the alternative mortgage lending market has also picked up comparable steam.”

Mortgage brokers have seen their portfolio of business begin to swing to the B side, mostly due to the first-time home buyer market drying up, refinancing through banks becoming more and more difficult along with restrictions on the self-employed.  According to CAAMP’s 2014 Fall Research report, brokers had originated 30% of all outstanding mortgage debt in the country.

“The balancing act of matching deals with a steady flow of capital seems to be continuing,” says Graves, “for what appears to be a positive situation for established MIC managers.”

From Graves’ perspective, mortgage brokers have seen a decline in prime business.

“This has led both broker and borrower to search for alternative means as the borrower often no longer reflects the ‘ideal’ profile of someone deserving the record low rates,” he says, “and brokers being filtered out of the large institutions as some banks exit the broker channel to focus on in house origination. A weakening economy, mixed with these points has created an opportunity for alternative sources of capital to benefit from the perceived added risk of the borrower.”

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