How does it work?
Borrower: The Impact Mortgage Investment Corporation is able to keep your monthly payments affordable because we can extend your amortization period and increase your loan to value ratio to fit your needs. This is possible thanks to Canadian banking regulations that allow MIC lending guidelines to be more flexible than those of traditional banks and credit unions.
Investor: The Impact MIC is a 100% flow-through tax-free investment vehicle. MICs were legislated into existence in Canada in 1973 to attract more private money to the financial industry while giving smaller investors access to the mortgage market. Nearly 300 MICs already operate in Canada, but none are dedicated to improving affordability of housing to mortgages. Until now. (Note: The manager of Impact MIC is owned by not for profits allowing the management fees to be directed to further community impact.)
Based on the Responsible Investment Association (RIA) Impact Investment Report 2018, Impact Investing in Canada has increased from $8.15 Billion in 2015 to $14.75 Billion in 2017. While this report is dated, this showcases the trend world over on how investment is now impact focused around communities and environment while aiming to obtain suitable return over investments.
Pension funds, foundation endowments and retirement investments are currently being invested in portfolios and businesses that are not even in Canada for the most part, with a pure focus on economic gain. What if a portion of these huge investments were invested in first mortgages for primary residents for essential workers in your community? These investments will provide much needed capital to address the predominant housing issue for our essential workers and help them build roots within our communities.
While the general notion about Impact Investments is that they don’t generate a good return over investment, the Impact MIC is the ideal opportunity for investors seeking to make a meaningful and measurable social impact in community development while also generating a competitive return.
Scalable, place-based investing and community wealth is now possible with Canada’s first impact based mortgage investment corporation (Read more about MIC’s in FAQ)
Competitive return on investment
Stability in families, volunteerism, community pride, home ownership
Stay in their communities, raise their families
Stable workforce, investment in skills and training for workers more likely to stay
“Nothing is as powerful as an idea whose time has come”
Impact Mortgage Fund: People Helping People.
By removing the bottleneck between market rental and regulated mortgages, we believe we can collectively improve the everyday lives of all people.
We can accomplish this through creating an impact mortgage investment fund (example: mortgage investment corporation or mortgage trust), because they fall outside the regulations traditional mortgages must follow. For example, the Impact MIC allows for increased amortization periods, which results in monthly payments that are much more in line with the current reality of family incomes.
Our goal with the Impact MIC is to provide first mortgages for primary residences for the sole purpose of assisting people who want to own their home but who currently don’t meet the borrowing criteria with regulated lenders, either due to household income limits or housing affordability in the communities they live and work in. The Impact MIC is a purpose-driven initiative, so we would only work with primary residences and first mortgages to avoid anyone accessing our fund for real estate speculation.
Our mortgage lending rate will be one percent (1%) above traditional mortgage rates to accomplish two things: 1) to financially encourage borrowers to move along the continuum once the borrower has multiple household incomes or increased home equity, thereby qualifying them for traditional borrowing (and saving them money with the bank’s slightly lower rate), and 2) to create lead generation for credit union and banking partners. Establishing the MIC lending rate in this way and encouraging borrowers to move along the continuum allows us to recycle the fund efficiently and help more people, thus creating further local community benefits.
The fund targets a 6.5% return on investment (ROI) for pension, endowments and consumer investors. We accomplish this by splitting the deployment of the fund under management to offer both first mortgages for people at competitive rates and revenue-based financing (RBF) at higher interest rates. RBF can be deployed locally to fund both community infrastructure (examples: construction and internet service providers) and local living economies (examples: business, family care, preventative healthcare, local food initiatives and inquiry-based education) by removing yet another bottleneck in traditional equity financing through RBF.
Last, given the ever-increasing pressure on non-government organizations to deliver wellness into human communities — and the increasing pressures on them to become less reliant on grant programs — the MIC can support the creation of new operating revenue for non-government organizations (NGOs). An example of this is our ability to pass along the net profit of the fund manager in exchange for communication channels through NGOs (e.g. Community Foundations) to help them fund community services. The MIC creates a full circle of social impact by capturing revenue, growing them, and redeploying them into the social sector where they will deliver ever greater impact.
We are interested in addressing three areas:
1. Create a “scalable” international investment for individual, endowments and pensions with local impact across our communities.
2. To help more people access first mortgages to buy their primary residence, and build family equity in real estate.
3. To create new funding to support the work of non-government organizations and to build local living economies.
If you’re a skilled tradesperson, health care provider, educator, or emergency responder working in BC and currently not eligible for enough of a mortgage to purchase a home in the community where you work, the Impact MIC may be a solution for you.
We are currently planning to make our first mortgages available in 2020.
Frequently Asked Questions
What sets our MIC apart?
- Our interest rates will be competitive to Credit Unions and Banks, not with other MICs.
- We fall in between market rental and traditional mortgages and want to do what Futurpreneur Canada did for small business for home ownership.
- We see this as a partnership opportunity for credit unions, banks and developers.
- We believe this is a tri-sector opportunity that will require private, public and NGO leadership.
- We believe this is a Canadian opportunity and will partner with each province to move this forward in your community.
- We will invest fifty percent of our MIC fund in private equity to target a higher yield for the investor as required. This portion of our fund will focus on community economic development to create further community benefit through revenue based financing.
- Our charter will be designed with the community, investor and home owner in mind.
- We see in our future this model addressing housing first solutions in our communities.
- We believe this is the first scalable impact investment offering in Canada that foundations, government, pensions and individuals can meet their needs through.
- We believe offering first mortgages on primary residences to Canadians is an excellent local investment option.
What is a Mortgage Investment Corporation (MIC)?
- A MIC is a company that pools the funds of investors. They are required to hold a minimum of half of their assets in residential mortgages, cash and insured deposits. The remaining assets can be mortgages on commercial or industrial properties, developments or other assets.
- MICs were legislated into existence in Canada in 1973 to increase the “flow of mortgage funds” and provide a channel for small investors to participate more directly in real estate finance markets through private lending.
- MICs typically provide shorter-term mortgages at higher rates to borrowers who have difficulty qualifying for loans from more stringently regulated financial institutions.
- Parliament created MICs to increase mortgage funds to finance the construction of new homes by accessing the accumulated wealth of the “small investor,” RRSPs, and pension funds. Parliament intended for MICs to help small investors overcome the following hurdles:
- Not being able to invest in residential mortgages because these investments could not be divided into smaller pieces and sold to a number of small investors. An MIC would permit small investors to invest an amount that represented a fraction of a mortgage.
- Not having enough money to invest in a diversified mortgage portfolio. A MIC could hold a diversified portfolio of mortgages, enabling the small investor to essentially invest in a piece of each mortgage.
- Not having access to mortgage experts to pick the mortgage investments and manage the portfolio. A MIC would have professional management that cost less than the management overhead of a conventional mortgage lender.
- The lack of liquidity in mortgage investments. A MIC would hold a portion of its portfolio in cash, permitting a small investor to liquidate as required.
- The double tax of a corporation. A MIC would not pay corporate income tax. Instead, the taxable income would flow through to the shareholder. It was thought that the lack of corporate income tax would make the MIC so attractive to RRSPs and pension funds that additional mortgage funds would make its way to the market annually.
What are the benefits of a MIC?
- Unlike banks and credit unions, MICs are not subject to federal mortgage lending rules and oversight, and MICs pay no corporate taxes when they distribute all their income as dividends to shareholders.
- Shares in MICs are eligible for government deferred and tax-sheltered plans such as registered retirement savings plans (RRSPs), registered education savings plans (RESPs), registered retirement income funds (RRIFs), tax free savings accounts (TFSAs), life investment funds, locked-in retirement accounts, individual pension plans, and registered disability savings plans (RDSPs).
- In Canada, CMHC-insured homes have a maximum amortization of 25 years, which, with a 20% or more down payment, can be extended to 30-35 years, if the lender agrees. MIC mortgages can have longer amortization periods (40 years or more). This approach is similar to Europe, where 50, 60 and 100-year amortization periods are available.
What are the rules for MICs?
- MICs are overseen as investment vehicles via provincial securities legislation. (e.g. BC Securities Commission in B.C.). They may accept foreign investment funds, but all assets held must be Canadian.
How many registered MICs are there in Canada?
- There are over 300 registered MICs within the Canadian market charging higher interest rates, between 4%-15%, and generating a return on investment between 4%-10%.
- MICs play a peripheral role in the residential mortgage market, accounting for under one per cent of total residential mortgages outstanding.
- (For more information, see CMHC Mortgage Investment Corporations – Update, December 2018)
How will the Impact MIC operate?
- The Impact MIC will focus on providing mortgages at rates competitive to those offered by banks and credit unions (between 2.75% – 4%).
- The Impact MIC will focus 50% of its portfolio towards residential mortgages for essential workers associated with its partner associations. The remaining 50% will be focused on construction sector financing solutions such as loans for bridge financing and preconstruction, or to better manage prompt payment.
- By increasing amortization periods, the Impact MIC can make monthly mortgage payments either less than or equal to a customer’s rent payments, thereby reducing the probability of defaults.
What ROI will the Impact MIC target?
- Financing for the Impact MIC will be through an equal combination of debt and equity. Funds will be obtained from banks, credit unions or government. Equity will be obtained from private investors such as individuals, corporations, pension funds and foundations looking for impact investments.
- Individual investors seeking alternatives to traditional equity and fixed-income products have increasingly been putting their money in Mortgage Investment Corporations. The Impact MIC offers investors a portfolio of low-risk first mortgages through a diversified pool of mortgages to essential workers in our communities. We lend on residential property located in urban and suburban areas in highly desirable municipalities.
- Our investments provide:
- Access to residential mortgage markets not typically available to individuals
- Less volatility than equities and more security than bonds
- Higher yields than traditional investment products, such as bonds and GICs
- Stable, reliable monthly income
- Our real estate investments are comprised exclusively of properties that are highly marketable. As an investor, you can choose to take advantage of our automatic dividend reinvestment plan and gain the benefit of compounding your return. Alternatively, you can receive a monthly dividend by direct deposit to a specified account to supplement your retirement income.
- The Impact MIC is targeting a more than 6% return for investors.
What additional benefits will the Impact MIC provide?
- The Impact MIC will provide services to help borrowers manage their finances to move into traditional mortgages as soon as possible in order for us to help more essential workers buy their first home.
Risks of Investing in MICs
- MICs lend money to borrowers that can not get traditional mortgages from banks. This could expose investors to the risk of not earning returns or not recovering their investment.
- MICs make development or construction loans based on what the MIC believes the property will be worth on completion. If these assumptions are unrealistic, investors may not recover their initial investments.
- MICs rely on valuators to determine a property’s value. Valuators use different techniques and if the valuator is not properly qualified, investors face the risk that the value of the property and the underlying security for the loan may be overstated.
- The composition of the mortgages in a MIC, other than residential mortgages, may pose unforeseen risks to investors. For example, mezzanine and construction lending pose significantly higher risk than loans on residential property.
- Loan-to-value ratio represents the borrowed amount as a percentage of the value of the real estate. There are no regulations that a MIC must maintain a particular loan-to-value ratio. Investors may face the risk that a MIC understates or does not understand the loan-to-value ratio in relation to a mortgage.
- MICs charge fees and incur operational expenses. Their fees may include management fees and loan origination fees. Investors should understand the fees and the extent to which the fees impact their investments. It’s good practice to review financial statements to assess operational expenses before committing to the MIC investment.
- MIC investments are not always liquid and can be difficult to redeem. It’s important to understand that MICs may only permit redemptions if they have sufficient liquidity to do so. Make sure that the liquidity and redemption rules fit your personal circumstances.
Investing in a MIC
- Security – Mortgages purchased by the MIC are secured by real assets.
- Deferred Income Plans – Investment in a MIC is considered a qualified investment and can be held in a number of registered savings plans (RRSP, RRIF, TFSA, RESP and deferred profit sharing plans).
- Diversification – Investors own shares of a diversified portfolio of mortgage loans, thereby mitigating risk.
- Regular Income – Investors can choose to take their dividends in cash or re-invest them into additional shares in accordance with the MIC’s dividend reinvestment policy.
- For more information, please contact us.
About the BCCA
The BC Construction Association (BCCA) is the provincial voice of BC’s industrial, commercial, and institutional construction sector. We represent the interests of employers in the institutional, commercial, and industrial construction sector regardless of labour affiliation and are a non-profit, non-partisan organization focused on ensuring a productive and resilient industry. We work closely with four Regional Construction Associations (Northern Regional Construction Association, Southern Interior Construction Association, Vancouver Island Construction Association, and Vancouver Regional Construction Association) who represent the communities they serve.
Initially we introduced this concept as an acquisition and retention solution for the construction industry which is facing workforce shortages, often in markets where skilled workers can’t afford to buy a home. Through our research we have realized that the mortgage affordability problem extends to all essential workers in Canada, and therefore we are keen to explore the opportunity of partnering and collaborating with representatives of other highly skilled essential workforces like educators, health care providers and emergency responders. It is our belief that together we can help build strong and resilient communities throughout Canada using this model.
If you are a potential investor or partner, contact Peter Elkins, Interim CEO
778.966.1250 – firstname.lastname@example.org
If you have a media inquiry, contact Greg Descantes
604.417.1379 – email@example.com
Learn more about the Impact MIC:
Download the Partner Presentation Deck.