# Investing in mortgages



## Rusty O'Toole (Feb 1, 2012)

Am thinking of loaning out money through a mortgage broker. Anyone experienced in this have any advice or is there a web site or other source of education?


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## birdman (Feb 12, 2013)

Brokers normally place loans with others when the individual or businesses applying for the loan cannot obtain financing through traditional sources eg banks, cr. unions, etc. The reason the latter entities will not make the loan is that the risk is too great. The broker charges the borrower a significant fee for finding someone to lend the money at well above traditional rates. In the end you would be investing in a mortgage which would carry a higher risk. 
When I was in the lending business I regularly saw detailed proposals from brokers looking for us to 'bank" the deal but we never did any of them. They looked not bad on paper but when you really get into them the risk is too great.
Also, on a personal note, years ago myself and 4 others started doing this but it didn't work. A number of the loans we made (at very high rates) gave us nothing but headaches and we were lucky to get our money back and not lose our shirts.
You may wish to read my recent most on MIC's and my quote that "If it sound too good to be true it probably is". 
Rusty, I think you may live in Kelowna, me too.


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## Rusty O'Toole (Feb 1, 2012)

I live in Ontario. Would like to read your recent most on MIC's but don't even know what it means.


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## birdman (Feb 12, 2013)

Here it is:
Firstly, from your post it is not clear whether the proposed investment is some sort of "one off" investment or a MIC (Mortgage Investment Corp). As I live in BC we do not have the same governmental structure, however, if the FSCO (BC is FICOM) is involved it sounds more like a MIC as opposed to a one off single mortgage which your post may suggest. 
If it is a MIC, or for that matter another type of investment, I recommend you stay away from it. 
Unfortunately I have a pretty good chunk of cash invested in 2 MIC's (13% of my portfolio) and when I originally invested in them some 5 yrs or so ago they were yielding around 9-10% and these returns have steadily declined to now around 2-3%. The funds were fairly liquid and you could normally withdraw without an issue. However, over the past years withdrawals have been severely restricted, returns are lower, and the value of the investments have gone down probably 20%. The foregoing is a result of poor lending by inexperienced management and Board of Directors who thought they were lenders. Most were real estate people with the board being successful business people. They were NOT LENDERS by profession! They made loans against rural properties, out of our own market properties, loans on vacant land, and some development loans. A number of these were ill thought out and no doubt were not bankable in the normal sense of the word. The end result were higher defaults and unfinished developments. Then some of these were sold on the understanding that the MIC would finance the development. All somewhat basic lending errors. Mind you, what would you expect if they were receiving 10% or higher rates plus fees! Hopefully by now you get the point and my recommendation is to stay away from it (like the banks have).
By way of background I am a retired financial executive with a strong background in commercial and other types of lending.
Remember the age old phrase that 'If it sound too good to be true it probably is".

Rusty: As mentioned previously brokers make their money in fees charged for placing loans with other institutions or investors. They send the proposals to credit unions, banks, investors, etc. Sometimes they may also operate their own MIC for investors and receive a management fee for operating these. This is the case with the ones I am invested in but they are not brokers. If the brokers operate the MIC and there is a bad loan with them there is nothing stopping them from selling this loan to an independent investor. I suspect this is what may have happened to myself and a few others years ago when 2 of our 6 mortgages purchased went south and we were fortunate to manage to get out of them.


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## heyjude (May 16, 2009)

That's a salutary tale, frase. I was looking into MICs about the time you were investing in them. I even attended a presentation by Romspen, where previous investors were singing their praises. Something about the business model didn't sit right with me. Why were the returns so consistent when the people borrowing the money seemed to be a high risk for defaulting? Also, they had a moratorium on withdrawals. (This was during the financial crisis). Anyhow, I didn't bite. I just looked up Romspen's website, and their reported returns have also decreased, though not to the same extent as the entities you invested in. I'm curious why you, a finance professional, invested in MICs in the first place.


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## birdman (Feb 12, 2013)

hey jude: personal message sent


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## Rusty O'Toole (Feb 1, 2012)

I'm not interested in MICs or for that matter REITs because when I looked into them years ago they all seemed to be badly managed.

Perhaps I should explain that I have been involved in real estate investing since the early 70s and have a fairly good idea what is going on. But have not invested in very many mortgages.

Now I plan to give my name to a few local mortgage brokers and see what they come up with. I got the idea from a real estate agent I know who invested some of his own money in bridge financing for someone who was buying a house but hadn't closed on the house they were selling. He is getting a good return, 35% including fees for a loan lasting 3 or 4 months. And is secured by a mortgage on a good house with lots of equity.

I did a search for a web site about mortgage investing but didn't come up with anything useful. Wouldn't mind brushing up if there is a source of good info on this business.


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