Ginkgo executive on what sets company apart in growing MIC space

This article was produced in partnership with Ginkgo Mortgage Investment Corporation

Fergal McAlinden, of Canadian Mortgage Professional, spoke with Henry Tse, chairman of the board at Ginkgo MIC, about the company’s value proposition for investors in the current market and how it works with mortgage agents.

The growth of private and alternative lending has been one of the most prominent trends in Canada’s mortgage space in recent years – and the increasing popularity of mortgage investment corporations (MICs) has been a significant part of that changing landscape, according to a leading executive in the space.

Henry Tse (pictured), chairman of the board at Ginkgo MIC, told Canadian Mortgage Professional that subprime consumers seeing an 8.9% year-over-year growth rate among Canadian consumers with an outstanding credit balance, according to a recent TransUnion report, showed “something deeper” about Canadian borrowing trends.

“In the past, alternative lending has had very limited growth because its fund sources are pretty limited,” he said. “But I think this current growth rate is more meaningful to show that more and more investors are willing to invest into alternative lenders such as mortgage investment corporations.

“As times change, MICs have become very popular – especially when they have been paying 8-10% returns compared to the low GIC rates at the bank. So, I think this growth of alternative lending will continue, and will catch up to the big banks slowly and steadily.”

What should investors look out for in their choice of MIC?

Investors will traditionally evaluate ratios including loan-to-value (LTV), debt-to-capital, and rates-to-return when researching whether to put their money in a MIC. Those remain important factors – but there are various other crucial considerations to take into account, according to Tse.

“The first thing to keep in mind would be the management team, which is pretty much the heart of any organization,” he said. “The team itself and the track record show the history of how a successful fund can manage risk.

“It’s not enough just to look at the official website. I think people need to go outside of the general channel, maybe look at reviews and how people outside of third parties have been viewing the MIC organization because frequently those are very independent viewpoints.”

Investors should also consider how many mortgages each MIC has under management, Tse said, and how diversified they are. Some may carry a handful of large projects, he explained, that – while representing multimillion-dollar investments – are often riskier than diversified portfolios.

“You need to look at how many mortgages a fund is carrying, with the more you have, the more diversified in terms of locations,” he said. “The type of security is also important. You may want to stay away from mortgage investment in resort or recreational properties, hotels and motels, or agricultural land.

“The simple reason is that if you want to sell those properties, it’s much more difficult compared to residential houses or condos.”

While many investors will look into the offering memorandum (OM) to get information on a fund, the OM could be somewhat dated, Tse advised, because it only needs to be updated once a year. “That’s why on our website [at Ginkgo], we post our portfolio and performance on a monthly basis,” he said. “We have that so when an investor looks into our MIC, they have more timely information instead of a dated history.”

Executive on Ginkgo’s value proposition

Amid an influx of new entrants to the MIC space in recent times, Tse said Ginkgo’s track record over more than 12 years in operation set it apart from competitors, with the company paying an 8.5% per-annum dividend monthly since 2011.

The company also remains focused on keeping 3% of its portfolio as reserved funds, compared with an industry standard of around 1% and sometimes lower for smaller MICs.

“Our 3% gives us a security blanket during times of uncertainty,” Tse said. “We have adequate reserve funds for our portfolio to handle the ups and downs of the market.”

The key to running a good MIC remains being able to find quality borrowers – and with Ginkgo having worked with over 1,000 mortgage agents and brokers during the past 12 years, the company is able to “cherry-pick” the best-quality deals to protect its capital, according to Tse.

Its focus remains on purchase deals rather than refinancing, for the specific reason that it believes refinancing carries much more intrinsic risk. “Simply put, we do not like people using their house as an ATM,” Tse explained.

“On the other hand, all purchasing deals require some down payment which usually comes from savings, and most homebuyers do not walk away easily from their house, principal home, earnings and savings.

“So, when we focus our lending in purchase deals, we’re actually helping to secure our portfolio more effectively and the number of people who default will be much lower.”

Tse said Ginkgo has developed a mobile app that’s unique among major lenders. The Ginkgo MIC Deal Tracker allows agents to manage deals effectively by submitting through their app, tracking progress, accessing funding ratios, receiving renewal notifications, and even receiving special incentives for sending deals to Ginkgo.

Ultimately, the company’s work with agents is essential to its ongoing success, Tse said, especially as those mortgage professionals are often also keen to invest in the market themselves.

“We work with a lot of mortgage agents and find out that they’re not just mortgage agents – they’re also investors themselves,” he said, “since they know the mortgage industry really well and know real estate better than anybody else.”

Ginkgo is unveiling agent partnership programs to help bring agents in as investors or refer clients through an investment program in 2024.

Currently, it offers a 2% bonus return for agents’ own investment, which, coupled with the company’s regular dividend, gives them a return of around 11% annually into the fund.

“This is a good way to encourage agents to be a part of our family and also to let them know about the business,” Tse said. “And they get to know us and how we can work together to build up a mortgage company. It’s a win-win situation.”

Ginkgo MIC is a mortgage investment corporation based in Canada.