The Way of Traditional Mortgage Lending is Shifting

Canada’s first crossover disruption to traditional mortgage lending is gaining ground in B.C. Is this the future of impact investing?

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The Way of Traditional Mortgage Lending is Shifting
Mike Geric Construction’s Speed and Frances development will provide 245 new homes.

If everyday British Columbians were able to access mortgages at reasonable rates, would it change the shape of B.C. communities and the broader economy? Serial entrepreneur, tri-sector leader and advisor to government Peter Elkins believes it could.

With the introduction of the Impact Mortgage Investment Corporation (MIC), in partnership with the BC Construction Association (BCCA), Elkins and BCCA chief strategy officer Lisa Stevens have given life to a scalable impact investment fund they say will enable more British Columbians to buy homes. Think teachers, skilled tradespeople, nurses and other essential workers — middle-class taxpayers who have been shut out of home ownership due to rising real estate prices.

“B.C.’s construction industry is facing a significant skills shortage, despite the significant earning power of trades careers,” Stevens says. “When I heard Peter’s Impact MIC concept, its relevance for workforce development in construction was immediately clear. Our worlds collided in a very inspiring way.”

A Pioneering Idea

It’s an idea whose time has come. On November 4, Apple announced it would funnel $2.5 billion into an affordable housing investment fund and a first-time homebuyer mortgage assistance fund, as well as Apple-owned land for affordable housing and support for populations at risk.

Similarly, Elkins says Impact MIC is a fiscal solution to a social problem. “Our research is telling us middle-class incomes aren’t eligible for mortgages, yet these people have good jobs,” he says. “They’re the people you want as your neighbours. And yet they can’t live in a mid-sized B.C. community because they cannot get access to a mortgage.”

Elkins studied amortization rates from around the world, most notably in Europe, where mortgages have much longer amortization periods, allowing people to get into the market and start building equity. He and Stevens worked with UVic MBA students to study global amortization trends and to examine the legal and taxation structure around mortgage investment corporations in Canada.

“What we found was that we weren’t constrained by any of the rules that the class A and B banks and credit union lenders are faced with,” Elkins says. “We get to decide what the amortization periods are, as long as investors feel comfortable with it.”

Longer amortization periods (25 to 40 years) and lower monthly payments are a key draw for home-buyers. In addition, there’s a more attractive loan-to-value ratio (up to 90 per cent), resulting in lower down payments. MICs are also not bound by federally regulated stress tests.

“We can actually look at somebody’s ability to pay, using rent as the indicator, and extend the amortization period,” Elkins says.

“That person can continue paying the same amount they’re paying in rent, but actually acquires the ownership of a property. And the loan-to-value ratio allows people who don’t have huge savings to access a mortgage.”

Investment with Impact

Investors put into the 100 per cent flow-through, tax-free Impact MIC for a targeted return, and their money is spread across a number of mortgages. Shares serve as qualified RRSP, RESP, RDSP, RRIF and TFSA investments.

“We can keep building government-subsidized and managed social housing,” Elkins adds. “However, people enter into those solutions not by choice but rather because the structure gives them no other options.

“There are some very specific instances where some people need their housing managed for them, but most of the population is more than capable of paying their mortgages and maintaining their homes … Canadians want to own a home. It’s still very much a part of our culture.” The BCCA board is planning to make mortgages from the Impact MIC available as of spring 2020.

This article is from the December/January 2020 issue of Douglas.