What is SD Mortgage Investment Fund?
Mortgage investment fund , also known as MIC ( mortgage investment corporation), is a mortgage investment vehicle wherein individual investors pool their investment capital through share acquisition. MIC is designed specifically to offer alternative (non-bank) mortgage funding for real estate properties. The vehicle then groups those mortgages together, enabling investors to own shares in a pool of diversified and secured mortgages. Backed by real estate properties, a MIC’s portfolio can run the gamut of loans on single-family homes, multi-residential development and commercial properties so long as at least 50% of its assets are in residential mortgages (or in cash).
How does SD’s Mortgage investment fund operates?
After Investors’ money flow into MIC’s capital pool, SD MIC has professional managers to source, scrutinize and acquire individual mortgages with the best risk/return profile. MIC’s fund manager will design portfolio and invest funds into diversified segments as individual residential/commercial loan, institutional loan, syndicated mortgage, preferred shares, etc. Fund managers are responsible for all aspects of mortgage portfolio administration.
The mortgage portfolio is continuously managed, with newly invested share capital, and the proceeds from repaid and discharged mortgages, being utilized to fund new mortgages. 100% of a MIC’s net income, as verified by external audit, is paid out to the shareholders by way of an annual dividend.
Like any company, a MIC’s net income is equivalent to its revenues, less its expenses. Revenue is earned in the form of mortgage interest, and fees and penalties. Principal expenses are the management fees, and audit and other professional fees. A MIC may utilize funds borrowed from a bank or other lender, in addition to its share capital, to fund a portion of its mortgage portfolio. .
What’s the policies and strategies SD MIC follows?
SD MIC strictly abide by the key salient rules of Section 130.1, SD MIC:
- Must have at least 20 shareholders with no shareholder holding more than 25% of the MIC’s total capital
- Must have at least 50% of assets comprised of residential mortgages and/or cash and insured deposits
- Invest up to 25% of its assets directly in real estate, but may not develop land or engage in construction Is a tax-exempt corporation and must distribute 100% of its net income to its shareholders
- Must have all investments in Canada, but may accept investment capital from outside of Canada
- May employ financial leverage by using debt to partially fund assets
- Not more than 10% of total assets can be allocated to any one property
- Not more than 20% of total assets can be allocated to any one borrower
- Not more than 30% of total assets can be allocated to non-income producing, non-residential assets
- Not more than 40% of total assets can be allocated to B-notes
- The average term to maturity of the loan portfolio shall not exceed 36 months
- Not more than 60% of total assets can be secured by second mortgage positions
- The maximum loan-to-value of any one mortgage may not exceed 85%