In response to a recent article in the Globe and Mail regarding rising interest rates, the OFSI (the Office of the Superintendent of Financial Institutions) is, once again, considering suggesting tightening rules surrounding mortgage lending. This self-glossing job-creating, socialist, taxpayer funded regulatory body’s mandate is to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks. It recently published its yearly assessment of economic risks and alluded to the possibility of more mortgages falling into arrears due to prolonged elevated interest rates. It is after all, the season for drive-in movie theatres and horror movies.

After reading this article and thinking of what actions they may be suggesting, I think there may be a more opportunity approaching alternative lenders and thus investors in mortgage investor corporations, or MICs.

With tightening of lending rules by regulators, such as the OFSI, we may see even more good loans fall through the cracks of bureaucracy. A discerning eye can often pick out a good borrower with a valuable property that is unable to qualify with a traditional lender, for one reason or another. But this requires some old-fashioned work by experienced people. Not running around checking to make sure toilets are flushing properly and the counter is wiped down. The old fitting a square peg into a round hole is the reason the mortgage broker business is alive and well. After all, we all know how cooperative commercial banks are in listening to private borrowers and how flexible and creative their experienced business staff are. Banks do reward employees who are line-order cooks, right?

Personally, I also attended the institution out on the Vancouver peninsula with a load of cracker assholes who have been teaching corporate business in the bubble for the past 40 years outside of reality, but well emersed in theoretical fantasyland.  

For better or for worse, there is a list of reasons that borrowing gets harder and harder to do, but that does not mean that non-traditional borrowing is necessarily risky, or even more risky now just because interest rates remain higher that over recent times.

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1.      With more regulation, I believe that traditional lenders have become lazier in looking at lending situations on a case by base basis and rely more on regulatory policy, attempting to square peg every situation in a lower-cost line-production-style scheme. Perhaps AI and robotics can soon process loan-applications more efficiently.

2.      I believe traditional lenders may have a vested interest in running down competition such as alternative instructions in the banking industry. More policy favors their business models in public perception. That is to say, the general public may feel that alternative lending and investment may be suitable for customers who may be themselves riskier or inferior just because they trust a name bank when it comes to money.

3.      The perception that tightening of regulations surrounding lending and investing may provide the perception of higher risk due to liquidity in general with consumers. This has often been demonstrated as fiction in the real-estate market when more stringent regulations and rules are introduced, but property values do not drop as expected.

4.      This perception is often accompanied with the possibility of industry fraud when coupled with ads by regulators that warn of property development schemes designed to bilk people out of lifesavings, when in fact interest rates usually have nothing to do with these pitfalls. This drive in does run double-feature B-movies.

The alternative real estate financial industry is regulated and audited by the same regulators and accountants.

WHAT IS DIFFERENT is that these alternative organizations may well look at each situation more carefully in the best interest of the borrower or investor, because they are in a more free-enterprise system than the well-protected commercial banks per say. Many of these smaller alternative organizations have founder or principles’ own money invested and are competing to be profitable in a specific industry, without the availability of government bailouts, or competition protection. In essence, they are forced to do their homework more carefully, and they can capitalize on outstanding lending opportunities and investment opportunities that fell through the cracks of standard traditional lenders, and which are not necessarily any riskier than standard deals. This is where many organizations can excel.

One such trust is the Tri City Group Monthly Income Mortgage Trust (TCGMIMT). As a bridge or alternative lender, they offer residential and residential-construction loans to non-traditional clients with clear business and exit plans, over short time frames. Often, these borrowers are using funds to advance outstanding private opportunities to the next stage of very profitable plans, or construction to put themselves in a position to refinance with one of the big five banks.

One of the TCGMIMT’s other major advantages is that they operate on much shorter time frames than traditional fixed-rate 20–30-year mortgages. While traditional lenders need to be thinking about what a single borrower might be doing 5 years down the road, the TCGMIMT will have cycled each dollar invested through 5 to 10 mortgages in that time. When someone does pay out early? That is a liability for a big bank, who was using those interest payments to project revenue in the long term. Conversely, this works to an alternative lender’s advantage. This means they can take the principal of that loan and earn a whole new set of interest and income on behalf of their investors.

Savvy investors look at these kinds of strategies to understand how an investment vehicle can capitalize, minimize risk, and maximizes returns in a fast-moving business environment.

I personally am invested in the Tri City Group Monthly Income Mortgage Trust. I highly recommend the investment to suitable investors who want to partake in exposure to the GVRD residential rea-estate mortgage industry with a professional, hard-working, dynamic staff that has a conservative, opportunistic, and profitable business plan. When it comes to borrowing or investing, I do take it personally. I want my financial institution to take it personally as well. After all, I have seen those old horror movies at the drive-in theatre before and they don’t scare me any longer.

Contact one of the investment advisors at Harbour Park Capital Partners Ltd. (an exempt market dealer for the trust) to learn more about the Tri City Mortgage Investment Fund and the Tri City Monthly Income Mortgage Trust if you want to learn more.

By an anonymous industry observer who is an investor at the Tri City Group Monthly Income Mortgage Trust, a Vancouver-based real estate trust.