Despite the fact that mortgage investment corporations (MICs) are considered to be an alternative, private and perhaps riskier source of mortgage investment, data from traditional and mainstream sources, such as the Canada Mortgage and Housing Corporation (CMHC), continue to show that the MIC sector is not only less risky than ever, but it’s outperforming all other segments of the mortgage market.
According to CMHC’s 2020 Annual Residential Mortgage Industry Report, MICs experienced a 7.6-percent increase during the period covered, which was the largest increase in the mortgages industry. Overall mortgage debt only increased by 4 percent. For the period, MICs held between $14 billion and $15 billion in debt, which represented about one percent of mortgages for all of Canada.
MIC risk profiles continue to improve
Given this established growth for MICs in the mortgages sector, what’s even more revealing is the most recent data published by the CMHC for early 2022. Since risk is often associated with private alternative lenders such as MICs, the numbers reported are very noteworthy.
The following numbers reflect the risk-profile data from MICs: From Q2 2020 to Q2 2021, the average lending rate for single families decreased from 9.3 percent to 8.8 percent. Also during that period, delinquencies of 60 days or more decreased from 4 percent to 2.13 percent, and foreclosures went from 3.8 percent to 2.6 percent.
However, all of this strong data in the MIC segment has to be taken in the context of the current rise in interest rates, spearheaded by Bank of Canada policy, which is predicted to throw some cold water on Canada’s housing market and mortgage rates.
But what about current uncertainty?
According to RBC, these higher interest rates are resulting in fixed mortgage rates that are returning back up to pre-pandemic levels, and variable mortgage rates are going back up, too. In fact, overall interest rates haven’t increased this much since 2006, which could have a very significant impact on all aspects of the Canadian economy, including inflation, growth, housing, etc.
So, what does this uncertainty mean for mortgage investment corporations. Well, if growth continues to outpace the rest of the mortgage industry, and if the segment’s risk profile continues to improve, then no matter what happens to Canada’s economy as a whole, MICs are in a position to do relatively better.
ASCEND MIC is a mortgage investment corporation, with offices in Toronto and Richmond Hill, that specializes in various aspects of mortgage investing, lending, administration and more.