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A Closer Look at MIC Investing: CMI’s Mortgage Adjudication and Selection Process

17 May 2022

With tighter mortgage lending rules governing traditional banks, many Canadians are turning to private lenders to obtain their mortgages. Private mortgages fill a critical gap in Canada’s lending market, and represent an untapped investment opportunity.

Mortgage Investment Corporations, commonly known as MICs, are investment vehicles designed specifically for mortgage lending. Although there are hundreds of MICs operating in Canada today, not all are created equal. Before investing, investors must review a MIC’s mortgage adjudication and selection process, its due diligence and risk mitigation practices. This should form the basis of whether a MIC is a worthy investment from a governance, capital preservation and competitive return perspective.

CMI Financial Group offers three industry-leading MIC Funds that collectively manage over $100 million in assets. With stability and capital preservation making up the primary pillar of our investment strategy, CMI has an end-to-end solution for sourcing, assessing and adjudicating loans.

Introduction to CMI’s MIC Funds

CMI currently offers three MIC Funds that provide varying degrees of exposure to Canada’s mortgage market:

  • CMI MIC Prime Mortgage Fund

Employs a more conservative allocation strategy by investing primarily in first mortgages and by capping its loan to value ratio at 65%,  targets a net annual yield of 6% to 6.5%.

  • CMI MIC Balanced Portfolio Fund

Targets higher annual returns by investing in both first and second mortgages, and by increasing the maximum loan to value ratio to 75%, targets a net annual yield of between 8% and 9%.

  • CMI MIC High-Yield Opportunity Fund

Targets higher risk profiles by investing primarily in second mortgages with a maximum loan to value ratio of 85%, aiming for a net annual yield of 10% to 11%.

How Does CMI Assess Mortgage Applications?

CMI Financial Group operates a family of companies that is responsible for all aspects of the mortgage lending process. Mortgages originate through Canadian Mortgages Inc., a private lender that works directly with third-party brokers across the country to source potential mortgage transactions.

CMI’s credit team adjudicates mortgages individually to ensure compliance with stringent underwriting policy. This requires evaluating the prospective borrower’s income and beacon score, the condition and location of the underlying property, and its loan-to-value ratio, among other variables.

Unlike traditional lenders, our underwriters also look at the borrower and their unique set of circumstances to determine their borrowing eligibility. Once a deal is underwritten and vetted, the pending mortgage is then transferred to our fulfillment and funding team, which gathers all the required documentation for validation and verification. This includes everything from income and credit verification to data on the borrower’s existing mortgage.

How Are Mortgages Selected for MIC Funds?

Mortgages that are approved and processed by our credit, underwriting and fulfillment teams are carefully evaluated to determine their appropriate fund allocation.

To evaluate whether a mortgage belongs in the Prime, Balanced, or High-Yield fund, the funds’ credit committee evaluates two main variables:

  • The mortgage (i.e., loan-to-value ratio, borrower profile, etc.)
  • The overall parameters relative to each fund’s broader mortgage portfolio.

CMI assesses all mortgages on a portfolio-basis. Each MIC Fund consists of a large number of other mortgages that share similar characteristics with respect to risk, diversification and yield expectations. Because CMI MIC Funds are focused on generating risk-adjusted returns, the credit team evaluates mortgages based on a weighted average for variables such as loan-to-value ratio and beacon score. This provides the best opportunity for risk mitigation and capital preservation while also meeting each fund’s yield targets.

Can Mortgages Be Reallocated? 

CMI considers mortgages to be living entities because they are held by real people with diverse backgrounds and unique personal circumstances. As such, it’s possible for a mortgage investment to shift from one fund to another during the repayment period, during loan renewal, or when a borrower’s circumstances change in any meaningful way. Mortgages are reallocated and funds are rebalanced to realign the weightings of the portfolios to maintain their desired asset allocation and level of risk.

What Role Does Technology Play in the Day-to-Day Management of the MIC? 

CMI is constantly integrating new technologies and processes in mortgage lending, adjudication and portfolio management processes. Continuous innovation and eagerness to embrace new technologies has helped make CMI one of the largest private mortgage lenders in Canada.

All mortgage applications submitted by third-party brokers come through the Filogix platform, which safeguards all applications and supporting documentation and also ensures efficient time management. While every single deal at CMI is touched by a human credit manager, the ability to centralize all the documentation in a proprietary underwriting network enables optimized process applications, and funds loans with maximum efficiency. Further, the same technological solutions are used by fund managers to make decisions on portfolio allocation.

 

How Does CMI Align the Needs and Interests of Borrowers and Investors? 

CMI Financial Group has constructed its family of companies to provide turnkey mortgage lending and investment solutions to the entire mortgage industry. We work with an extensive network of third-party mortgage brokers who represent their own individual clients and have their unique interests at heart.

Our mortgage broker partners apply their expertise in ensuring a private mortgage is suitable for their clients. From there, our rigorous adjudication and allocation process enables us to offer three distinct funds with target yields tied to specific risk and return profiles. We remain confident that mortgages originated through Canadian Mortgages Inc. are suitable for the borrower while also serving the needs of our investors.

CMI offers what no bank does: an end-to-end solution for mortgage origination, a dedicated underwriting team and proprietary technology that work in concert to deliver an industry-leading family of MIC funds with a blend of rigourous governance, risk mitigation and competitive returns.

If you’re interested in learning more about CMI MIC Funds, contact CMI Financial Group for a free consultation. We will walk you through the options and answer any questions you may have about our mortgage adjudication and selection process.

 

What Happens Next?

CMI Financial Group will continue to analyze market changes and keep you updated on a regular basis. Contact us by filling out the form below for more information about our MIC funds.

 

Contact Us

Contact us for more information on our MIC funds or to book an appointment with one of our Investment Professionals.

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