Beware of 'misconceptions' about MIC space, says executive

Director dismisses idea that sector only works with bruised-credit borrowers as misguided

Beware of 'misconceptions' about MIC space, says executive

With the prominence of mortgage investment corporations (MICs) in Canada continuing to rise, a leading executive in the sector has called on mortgage brokers to gain as comprehensive an understanding as possible of the space – and avoid common misconceptions about how those entities operate.

The growth of MICs has been a trend noted by observers including Canada Mortgage and Housing Corporation (CMHC) in recent times, with the national housing agency noting in its last fall mortgage industry report that the nation’s top 25 MICs increased assets under management by 7.1% in Q1 2023 compared with the same time last year.

Kyle Williams (pictured), director, mortgage sales at First Circle Financial, said there’s plenty of opportunity for brokers to work with lenders in the space, and highlighted a frequent view – an erroneous one, he said – that MICs only work with individuals whose credit score is low.

“It’s a solution for problems out there. I think that’s the misconception: a lot of people think we work with extremely bruised-credit people, bankruptcies, foreclosures, people that just can’t get traditional financing from the bank,” he said.

“That’s really not us. Our average credit score at our company is over 650, so we typically don’t work with clients with credit scores under 600. We’re really just working with people that have a short-term need: business owners that don’t declare a lot of income, can’t get qualified at the bank because they just don’t show it.”

Those individuals’ money may be tucked away in their company, Williams said, “and they might need to pull it out for the next two years. And that’s how we’re going to get paid out.”

How are perceptions of MICs changing?

He pointed to changing perceptions of mortgage brokers in recent decades as an example of how views of MICs are also evolving.

“I think it goes back to the way mortgage brokers were perceived in the 1970s and 1980s – it was all, ‘They can’t get bank financing, these mortgage brokers out there are the shady loan shark kind of people,’” he said.

“And that’s really not what it is. Mortgage brokers are just people out there that can provide these solutions with different lenders – just like we can, as a MIC, provide solutions for certain issues with different products and things that we might have.”

Especially common, according to Williams, are situations where closing dates don’t match – for instance, with an individual who has a firm sale on their house closing on a particular date, but their new purchase date is scheduled for a month or two prior.

With fully open terms, borrowers will have to pay a certain amount in fees but could avoid a potential lawsuit and be able to keep their deposit, he added.

Educational approach crucial for brokers in 2024 market

Also top of mind for brokers in the current environment, according to Williams, should be providing an education-driven approach to clients and giving them a thorough rundown on what the likely implications of various interest rate scenarios are to their homebuying prospects.

“There’s a lot of stuff that I’ve read [about] people waiting on the sidelines right now, waiting for interest rates to drop,” he said. “But if that happens, then there’s a very good probability that house prices are going to go up.

“So I would be sitting down with your clients that are sitting on the fence and running models: ‘OK, if we expect interest rates to drop by X, then we also expect house prices to go up by X…’ See what the cost differential is and see what the affordability is there.”

Sitting on the sidelines isn’t necessarily an approach that’s proven a good idea in the fast-moving Canadian real estate market, he said, even if affordability and qualification are providing difficult for many borrowers at present.

“In two years or so, they might be priced out of the market,” he said. “I would just say to educate your clients, because every client is going to be different. Educating your clients on the cost of waiting is a big one. Run models between rising house prices and dropping interest rates, and rising interest rates and stagnant house prices.”

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