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ISSUE 04 • SPRING 2017

FREE ar wePbAGinE 24



How to take advantage of GTA Real Estate PAGE 20

MIC MANAGEMENT CYBER SECURITY Top tips for managing MICs with Dolphin Enterprises PAGE 08

Are you prepared if your online data is compromised? PAGE 18


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CONTENTS     SPRING 2017 EDITION                                    06 EDITOR’S NOTE How best to position yourself in the changing mortgage market.

08 TIPS FOR MANAGING A MIC Part 1 in a 3 part series on managing a Mortgage Investment Corporation. Get all the details from the expertise of Shannon Dolphin of Dolphin Enterprises Ltd.

11 COVER STORY PMToday caught up with a few industry professionals to gain their insights into helping brokers understand the changing landscape.




LMS ProLink’s Derrick Leue guides you through the world of cyber insurance in his quarterly feature “From Derrick’s Desk”.


FEATURES 16 FINANCING LAND Rena Malkah of CYR Funding Inc. explains what you should know about land financing.


PMToday features William Ball of Landmark Capital Corporation and highlights the benefits of real estate investments.

22 RISKS IN PRIVATE MORTGAGE INVESTING Frank Laurie of Vector Financial Services guides you through the risks you should consider in private investing.

24 SOCIAL MEDIA AUTOMATION PMToday caught up with Ingrid Menninga of JOLT Marketing to understand what successful brokers are doing.

27 AD INDEX »»p.08

Get a snapshot of who is advertising in this edition.




HOW BEST TO POSITION YOURSELF IN TODAY’S MARKET The department of finance changes announced in November last year certainly caught many off guard. Indeed, the impact of changes to bulk insurance program has left many monolines desperately looking for balance sheets so that they can continue to offer rental programs. The banks are in a better position, having their own balance sheets but have also increased pricing on such loans as most pundits in the mortgage industry predicted. Pricing in general is up but some of the increases along the way have been due to the bond market. With many lenders trying to adapt to the new reality of “insured”, “insurable” and “uninsurable” mortgages, there is mass confusion in the industry as to what a broker can get done and at what pricing. For the moment, though, the gap between pricing offered by institutional alternative lenders, private lenders and prime lenders has shrunk. This narrowing of the gap combined with many borrowers not fitting in the boxy guidelines of prime and to some extent institutional alternative lenders will continue to deliver unprecedented mortgage volumes to Mortgage Investment Corporations and private lenders alike. Finally, CMHC default insurance premium hike effective March 17, 2017, will further narrow the gap between the cost of getting a mortgage from a prime lender at 85% LTV versus going to an institutional alternative lender. There are a few rationales that are being debated in the industry as to why CMHC chose to increase the premiums. Whether one believes one rationale over the other, one thing is very clear; institutional alternative lenders will now have better opportunity to chase more qualitative business at a higher margin. This in turn will leave more traditional “b” business on the table for MICs and private lenders. In addition, MICs that are well capitalized will be in an enviable position to capitalize on the tremendous demand for 1st mortgages. As always, PM Today team will continue to monitor the market for opportunities and headwinds to keep our readership informed and able to mitigate the headwinds while capitalizing on the opportunities. In this issue, we pressed the key players in the industry to share their thoughts on the current state of affairs and how best to position yourself as a broker, private lender or a business in general. Happy reading. - Harry Singh



Editor Harry Singh

Ajay Kaith Bryan Jaskolka Derrick Leue Rosa Shirani Shannon Dolphin Kimberlee Freeman Rajan Kaushal Ron Butler Rena Malkah William Ball Frank Laurie Ingrid Menninga

ART & PRODUCTION Production & Design Kayla Patullo

EDITORIAL & ADVERTISING INQUIRIES tel: 647 872 6807 Private Matters Today Inc. 3280 Bloor Street West, Suite 1140 Toronto, Ontario M8X 2X3 tel: +1 647 872 6807

Private Matters Today Inc. is a B2B publishing company that produces a quarterly magazine dedicated to providing educational content surrounding private lending and investing, as it relates to mortgage brokers and agents operating in Ontario.

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributors are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss.



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With recent changes in the traditional Canadian banking regulations, growth of MICs and Canadian Private Lenders has been expanding exponentially. For those creating a MIC or would like to grow their MIC, having an effective administration system can provide ease for management of daily tasks as well an effective system for growth. In addition to duties required to manage any corporation, MIC management requires managing a conduit of capital. MIC Managers need to manage investments into the MIC in terms of share purchases, the allocation of capital into mortgages, payments back into the MIC (in terms of mortgage payments) while also maintaining a system of reporting and financial accounting. WHAT ARE MICs MICs are unique in that they can raise capital through individual investors as well as able to lend money for mortgages outside the Canadian traditional banking system. MICs are also unique in that as a Corporation they are exempt from corporate taxes. In order to meet MIC status, MICs must comply with regulatory bodies including the Mortgage Brokers Act, Provincial Security Commissions as well as the Income Tax Act.


INCOME TAX ACT MICs are defined under section 130.1 of the Income Tax Act as a tax- exempt Corporation and all income (minus fees, expenses etc.) must be distributed to shareholders. For a MIC to maintain its exempt status the administrators need to comply with the rules on the Act such as and not limited to 50% of the MIC assets must be invested in Residential Properties, minimum of 20 shareholders and no such one group of investors can invest 25% of more of the MIC assets. In order to comply to the Act, MIC Managers will periodic review their portfolio with corporate analytical and accounting reports, particularly at corporate year end. Income Tax Act,[1] Section 130.1: Salient Rules 1. A MIC must have at least 20 shareholders. 2. A MIC is generally widely held. No shareholder may hold more than 25% of the MIC’s total share capital. Shareholders whose MIC holding are held in registered accounts (RRSP, TFSA, etc.) are limited to 10% due to regulations restricting ownership in those accounts. capital. 3. At least 50% of a MIC’s assets must be residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions. 4. A MIC may invest up to 25% of its assets directly in real estate, but may not develop land or engage in construction. This ceiling on real estate holdings does not include real estate acquired as a result of mortgage default. 5. A MIC is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders. 6. All MIC investments must be in Canada, but a MIC may accept investment capital from outside of Canada. 7. A MIC is a tax-exempt corporation as its income is instead taxed in the hands of its shareholders. 8. Dividends received with respect to directly held shares, not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, or additional shares. 9. MIC shares are qualified RRSP and RRIF investments. 10. A MIC may distribute income dividends, typically interest from mortgages and revenue from property holdings, as well as capital gain dividends, typically from the disposition of its real estate investments. 11. A MIC’s annual financial statements must be audited. 12. A MIC may employ financial leverage by using debt to partially fund assets.

AUDITED FINANCIALS Rule 11: MICs annual financial statements must be audited. MICs need to maintain accurate financial records as well as an accounting system. Creating and managing your MIC using a Chart of Accounts for real time accounting will provide a strong financial system for corporate analysis. Furthermore, managing your MIC using an accurate and updated Chart of Accounts will allow MIC managers to view their finances at a glance such as Interest Receivable balances and Share Capital under management. Cash Management for the MIC is the backbone of MIC administration thus having a real time true accounting package is essential for strong MIC management. INVESTOR COMPLIANCE MICs acquire their capital to lend by offering individual investors an opportunity to purchase shares in the MIC. The investment of the MIC is regulated strictly by each of the Provincial Security Commissions. Understanding and applying these rules are vital to administering a MIC. (please refer to a lawyer for maintaining SEC Provincial Compliance) Similarly, MICS may need to comply to the National Instrument 31103 CRM2 Compliance. In order to comply to 31-103 and the new CRM2 regulations, MICS will need to produce Compliance reports including Form 45 106F1, Investor Statement of Holdings, Quarterly Statements, Confirmation of Transactions, Transaction History (Trade Blotters) and recently implemented Annual Charges and Compensation report. Another recently implemented and frequently used Compliance report is the new Investor Performance Report with money weighted rate of return. REGISTERED INVESTMENTS Upon approval, MICs can accept investment from registered funds such as RRSP and RRIF. When MICs are managing registered funds, they will need to comply with requirements to report to the Trustees. For instance, Olympia Trust requires a physical share certificate for initial investment and to reflect any accrued dividends from the MIC. Similarly, Trustees can instruct MICs certain format for reports if MICs send cheques or cash payments to Trustees. Having a system in house to automate the creation of certificates and reports for new purchases as well as accrued dividends is recommended for managing registered funds. DIVIDENDS Investors in a MIC receive return in their investment through dividends. MIC Managers will distribute dividends either monthly, quarterly or annually. Dividends are usually calculated on a daily basis (365 days) based on their proportional investment. Investors might have many different investments (shares) with varying amounts and purchase dates as well as registered or non-registered. Effective MIC Management will use an automated dividend calculation and ideally an electronic (eft) distribution system which will save days of administration time while similarly great reducing investor errors.

consuming. Investors will likely periodically call regarding their investment and having a handy report also available online will greatly reduce administration time as well as provide a professional online presence. UNDERWRITE GOOD LOANS In order to manage a MIC, managers will also need to successfully underwrite and fund loans. Most MICs will have a dedicated person(s) who are experienced underwriters able to mitigate risk by making prudent lending decisions. MIC Managers generally underwrite their loans using objective decisions and could even physically visit the properties. Many MICs will also have a credit committee with very strict lending policies based on such factors as loan to value ratios and the sale or value of the property itself. Having a very strong and experienced underwriter in your MIC will likely reduce defaults on properties thereby greatly reducing the timely and costly administration of foreclosure and loss of funds. SYSTEMS Creating an integrated transaction based system for Mortgages, Shares and Accounting will provide a good administration for a majority of MIC Management. With recent changes in Compliance rules such as 31-103 Investor Performance Report, having an ability to maintain compliance through the generation of reports will reduce chances of errors and maintain good regulatory compliance. Similarly, having a system that reports and provides corporate analysis will provide opportunity for growth for aid in corporate decisions including Underwriting decisions. Managing your MIC with a real time accounting system will provide MIC Managers with a system to generate financial reports for audit as well as quickly grow through corporate analysis. MICS are an excellent vehicle for investment - provide a terrific source for funding - as well as a fantastic business to manage and run. Just ensure, as MIC Managers, you have good systems in place. _____ Shannon Dolphin is CEO of Dolphin Enterprises Ltd. and has been working with MICs for over 14 years. Dolphin and its new Underwriting and MIC Manager software solution is the only software to provide administration for MICs from the application of the loan to the back-end transaction based Chart of Accounts/ Accounting system.

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IN TODAYS CHANGING MORTGAGE LANDSCAPE   At a time when traditional lending is being squeezed, many brokers feel like they are extremely limited in what they can offer their clients. Creative funding through private lending or Mortgage Investments Corporations can tackle unique scenarios that typically fall outside traditional bank lending, offering much-needed solutions for brokers to offer their clients. Why should you consider private lending? Because it continues to succeed despite new government changes, and the brokers who tap into this financing option can take advantage of a new profitable stream of income while providing their more borrowing options that might be able to better suit their needs. In general, private lenders are typically more flexible than big banks, giving you more funding options for your borrowers. It is important not only to find a reputable private lender, but also to understand the market. The key to success is knowledge therefore brokers, now more than ever, are expected to know it all. PMToday caught up with a few industry professionals to gain their insights to help brokers understand the changing landscape. SHIFT IN THE MARKET

Q . What are your thoughts on the new pricing models within the prime side?


“In most cases change brings good to one party, and possibly not-so-equal good to the other party. In this situation, we’re seeing traditional lenders increasing their pricing which is considered good for the lender, however not so good for the consumer. ‘A’Lenders have always had a preference for low risk borrowers. Those borrowers will do their best to conform to the new rules and will likely adjust to the new pricing before WWW.PMTODAY.CA • PRIVATE MATTERS TODAY • 11

COVER STORY long. Others consumers may struggle to fit in the new box which may bring more opportunity to brokers for ‘non-cookie cutter’ deals.” -Kimberlee Freeman

A . “As expected there would be an impact to purchases and refinances on the prime side. With bench mark rates required for qualification, borrowing power becomes substantially reduced. I don’t believe this has impacted the need for financing; it has only forced borrowers to look at alternate means of obtaining financing. Those who have solid income and access to higher down payments through gift from parents would not be impacted. Those who do not have to look elsewhere.” -Rosa Shirani

Once the governing bodies figure out a solid foundation of rules and regulations we imagine the playing field will eventually come back to some normality.” -Kimberlee Freeman

trusted lender that can provide them with what they need. If you can match supply with demand, you’re bound to have success. Given the changes to the lending industry and stricter guidelines governing selfemployed Canadians, alternative lending A . “With higher rates and the change in is increasingly viewed as a more viable lending guidelines we anticipated a shift option. So, in other words, we’ve found the market to be very receptive. We said it years ago: lending regulations will get stricter. Last October, those concerns were realized with the passing of Borrowers are always looking for the the new mortgage guidelines. best deals, and are open to working We like to think we’re ahead with any trusted lender that can of the market, and service our provide them with what they need. If clients with the same approach.” -Bryan Jaskolka you can match supply with demand,

you’re bound to have success. Given the changes to the lending industry and stricter guidelines governing self-employed Canadians, alternative lending is increasingly viewed as a more viable option. So, in other words, we’ve found the market to be very receptive.”


With more complicated pricing models and general rate increases on the prime side, are you noticing any impact on your business?

A . “There is no impact in our lending model at this moment, however, that could change if the prime rate or rates in general increase significantly. In that scenario, private rates may have to move with the market and increase substantially.” -Kimberlee Freeman

- Bryan Jaskolka, CMI

A . “Brokers are reaching out to alternative lenders but also reaching out to more credit unions trying to find the best price for their borrowers. We are seeing a higher volume of deals coming from alternative sources and more deals from borrowers with good credit and good income.” -Rosa Shirani

to alternative lending. Whereas before many applications were from borrowers with bruised credit and stated income, now we are seeing more borrowers who are employed and whose credit is not bruised but mentioned we are seeing more deals with various first mortgage position approvals. Brokers are also finding new sources of lenders for first position in order to get their clients the best rate possible.” -Rosa Shirani

Q . Have




you noticed a shift from prime to alternative lending as a result of these changes? If not, do you foresee this happening?

“Yes we have! Our volumes have increased dramatically and I’m sure other MICs and Private Lenders are also experiencing growth. It is imperative that even though we are experiencing this change, a correction will be imminent.


“The mortgage rule changes, OSFI’s and the insurer’s continued emphasis on credit quality and will force more business to non-prime lenders.” -Ron Butler Are you finding that it is easier to migrate borrowers over to the alternative lending side?


“Borrowers are always looking for the best deals, and are open to working with any


“We assume the brokers and agents are educating their clients as to “WHY” they are being placed in the alternate lending space. Credit and income of course play an important role in this decision, however, borrowers struggle to understand the reasons why they don’t qualify for 3% Prime loan and are now in the 6-9% range. The broker should be identifying all possible solutions that will make it easier for the client to transition back to traditional financing sources in the future.” -Kimberlee Freeman


“When it is right for the borrower, our mortgage broker partners are experiencing the benefit of dealing with alternative lenders. We eliminate much of the red tape and the borrowers get the mortgage they need.” -Rajan Kaushal

A. “I don’t believe the migration would be too difficult. It is about educating the borrower, explaining the differences between their main bank and alternative lending and ensuring they have an exit strategy. Borrowers will proceed if there is a plan.” -Rosa Shirani A. “No one wants to pay higher than bank rates but reality creates its own migration of borrowers.” -Ron Butler

A. “As usual, during any change in lending criteria or change in rates there are always pockets that will be impacted more than others. There are also pockets that are not impacted at all. It is always goes back to supply and demand.” -Rosa Shirani Q.

As concern rises regarding true real estate valuations, is your company doing any further due diligence on the lending pricing?



With increase in volume anticipated with Private Lending, do you believe MICs and Private Lenders will be able to keep up with supply of capital? How do you think they will manage this?


“This is very much and always will be a juggling act. One can only continue to keep their eye on the ball within their own company. Reporting on a daily basis is crucial for pending discharges, volumes, units and specific dollar amounts as well. This will now give the managing company the ability to forecast revenue that will be needed in the future. Hence once again… ‘Juggling Act’.” -Kimberlee Freeman

A. “Yes I believe the capital will be available. Some of the established MICs and Private Lending companies like us will be able to raise the capital needed. I think the companies that have sufficient capital will gain market share and the overall alternative lending market will adapt.” -Rajan Kaushal A. “I can’t speak for the MIC’s and the Private Lenders that are out in the market. Here at Paramount Equity Financial Corporation, we have always grown with our own anticipated need. We have been around since 2006. Some of our investors have been with us since the beginning. They are our biggest advocates and continue to add more funds to their Investments and refer friends, neighbours and relatives so that our assets under management continues to grow to meet the growing demands of new deal flows coming through our underwriting department. We haven’t changed our lending guidelines, or our investor model. Some may try to re-invent the wheel. We are confident in our model and continue to grow as a result.” -Rosa Shirani


“There is enormous capacity in this country based on investors appetite for yield, I don’t foresee a capacity problem until property values come under pressure.” -Ron Butler VALUATION


What is your outlook on the current real estate market in Ontario?


“Ontario remains one of Canada’s hottest markets, and this extends beyond the GTA. Regions such as Windsor-Essex and Hamilton are seeing strong growth, while Ottawa continues to enjoy stability. Population growth and rising demand will continue to fuel sales across the province. We expect home values to rise steadily for the foreseeable future. While it has been argued that home sales are unlikely to benefit the Canadian economy in 2017 as they did last year, but the outlook in Ontario remains steady.” -Bryan Jaskolka

A . “Lenders and consumers alike should be wary of a correction to come. We are hoping that the correction has minimal effect on current values, however, we would prefer to see a longer-term correction of at least 2 years so that the market might return to some sort of normality.” -Kimberlee Freeman A.

“Currently our real estate market is healthy. However, it has primarily been fueled by low interest rates, new immigrant and foreign buyers. If these factors were to change, this would directly impact the demand. We currently have a lower amount of supply, however with the new tighter mortgage rules I think there will be a more balanced supply and demand in the near future.” -Rajan Kaushal


“With respect to valuations, the industry is concerned with Vancouver and Toronto. The 15% levy on foreign buyers in the Greater Vancouver Area is working to bring prices down. In Toronto, demand remains very high, so it’s difficult to argue the market is “over-valued.” People often forget that Toronto is North America’s third-largest city, the economic hub of Canada and one of the world’s premier cities. It will continue to attract money (foreign and domestic). Our due diligence process remains as rigorous as it has always been. Where we differ from the traditional banks is in our ability to extend credit to Canadian business owners and entrepreneurs who are the lifeblood of the economy. We look for more than just a bi-weekly cheque, but that doesn’t mean we skimp on assessing the creditworthiness of the borrower. Existing lending guidelines have left many potentially strong borrowers with few options. This market offers an excellent business opportunity.” -Bryan Jaskolka


“NHMC’s LTV decisions have been pretty consistent within the last decade. Of course, there is always a concern for what is deemed as “True Real Estate” valuations. The volatility, whether it be the supply and demand of actual real estate or employment issues may very well determine our appetite to lend and our pricing in general. At the end it all boils down to perceived risk and overall marketability of the real estate.” -Kimberlee Freeman


“Paramount Equity Financial Corp. has a good fundamental model that works and we are staying true to our course. Risk management is our main focus and understanding the risk of markets we lend to daily is paramount to our success and security for our investors.” -Rosa Shirani



A . “Pricing is not the issue in valuation concern; prudent underwriting and lower LTVs are the correct approach, the highest yield will never fully offset severe capital losses.” -Ron Butler

for differences and location? If a lender is lending on equity they will be reviewing all of this information. Brokers should package a deal answering any questions before the lender asks.” -Rosa Shirani



If you notice market prices stabilize or decline, what steps would you take to understand the true value that you’re lending against & How can Brokers package deals to assist with this understanding?


“The most important thing that we look at is cashflow, especially when borrowers have lower equity and are in markets with a higher chance of decline. A great example would be the Alberta market, where we have continued to lend throughout the downturn but focused on those with stronger equity and income, or who might have lost their job but had good dormant equity. For risk management purposes, clients with limited equity, income and in markets in decline are best off selling their homes and re-entering the market in a stronger buying position with a prime lender, versus trying to hold on to a property they will likely lose anyway and end up with no equity. The #1 thing we always ask of brokers when submitting a loan request is transparency, a clearly worded short summary, and as much supporting documentation a possible.” -Bryan Jaskolka

A . “If the market prices decline, the amount of business we receive increases because we will continue to lend while some lenders exit the market. During this time we forecast the price correction and incorporate it into our underwriting. We also take note that some higher priced homes and less desirable locations may be impacted more significantly. The more information the broker can provide the better.” -Rajan Kaushal A.

“Market shorter terms like 6 months and avoid seconds in favour of first mortgages.” -Ron Butler


“Whether a market is stabilized or in decline, all I can say is that Brokers must read the full appraisal before sending to the lender for review. They should be looking at all the details of the property, days on market, comparables; Are they similar? Have adjustments been made


Q. What value can Brokers bring to support these changes? A . “Brokers are best suited to support the challenges of a stricter lending environment. With the recently implemented mortgage rules, many more Canadians will be looking for other options when it comes to financing their home. In this sense, brokers can help a wider market secure the financing they need. More and more Canadians are trusting mortgage brokers than ever before. That’s because borrowers realize it’s a good idea to speak with a broker before going to one of the top-five banks. Going to a broker first gives you a pretty good chance of securing a better rate. “ -Bryan Jaskolka A.

“The brokers must continually stay educated with different lender products. This will surely enable brokers to demonstrate to the public they are changing with the times. Brokers must be able to handle any situation that falls on their desk whether it is an “A” deal or a “Z” deal. If you are faced with a challenge usually it is accompanied by potential opportunities. Creative financing should be their focus now. You can’t keep on doing the same things and expect change.” -Kimberlee Freeman

A . “A broker is responsible to the borrower and to the lender. It is important that when they discuss a client’s position and options that the broker understands where the borrower currently stands, what their final goal is and how they will get them there. The broker then has to find the right lender for their client’s situation.” -Rosa Shirani

than rent. A lot more people are affected by the new lending rules, and self-employed individuals will always struggle to obtain financing from traditional lenders. As a broker, use these challenges to create opportunities. It is important for brokers to look at all lines of business, A, B, and C (private) in order to be fully diversified so that if one segment comes under pressure, normally that means a different segment is going to see that demand shifting. Ultimately, the mortgage rules do not wipe out debt in the economy or change home values, it only shifts the composition of that debt between various credit tiers.” -Bryan Jaskolka


“I believe that it is advantageous for brokers to build relationships with different types of lenders and understand the mortgage products available in the market. If a broker is able to provide prime and alternative mortgages to their clients, they will do more business and their clients and referral sources will think of them first for their financial needs.” -Rajan Kaushal

A. “As always, it is important for the broker to listen to their client, understand their goal, formulate a plan that the borrower understands, a plan they agree to and then the broker will have follow up to ensure the clients remain on track.” -Rosa Shirani There are enough unknowns in the industry right now that it would be foolhardy to ignore the recent changes. Brokers should attempt to adapt to this changing landscape and leverage the new opportunities to build services and relationships with new lenders and borrowers. _____

Bryan Jaskolka, CMI Loans

Kimberlee Freeman, New Haven Mortgage Corporation

Q. With these changes, what advice would you have for a broker starting out this year?

Rajan Kaushal, Tribecca Financial Corporation

A . “Brokers should see the current lending environment as an opportunity. Homeownership remains in very high demand, and most people would rather buy

Ron Butler, Butler Mortgage

Rosa Shirani, Paramount Equity Financial Corporation

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Generally, financial institutions do not lend on land unless it is for a very high net worth or experienced and proven builder or developer, but even that is difficult. Most land is financed either by the seller holding what is known as a Vendor Take Back mortgage or with private lenders, usually through a mortgage broker. Since most land is not income producing an interest reserve to cover 1 year’s payments may be held back.

In addition to the appraisal you will require an environmental report. The consultant who does a Phase 1 report, which costs about $2,500 may recommend a Phase 2 report if there appears to be any concern, like above ground or underground oil tanks, previous use of a gas station or dry cleaning facility, etc. The Phase 2 report can cost $7,500 to $10,000 and usually takes 3 to 4 weeks to complete the boreholes and get the laboratory results of the soil and water samples.

There are many types of land situations, from agricultural farm land, residential building lot for a custom home, multi-unit land such as for a subdivision townhouse project or condominium apartment building, to land for commercial projects including plazas, industrial buildings, office buildings, seniors residence, or any other type of building. Some land may not have zoning approved for the use the borrower desires. You must determine with the land planner the status of any application for rezoning, the timing and process, as well as the likelihood of approval.

If the Phase 2 report states no further investigation is required, you are good to go. However, if there is contamination you will need an estimate for the cost of remediation and the lender may elect to hold back the remediation cost, to be released once the remediation is completed.

Depending on the zoning, use, location (city, rural) and the strength of the borrower the loan ratio can range from 50% to 75% of value. Most often it is 65%, so the down payment should be 35%.

I once had a client building 10 townhouses in Coburg in 2 sets of 5. He tried to save money by not getting a Geotechnical report, the first 5 townhouses were fine but the second group of 5 townhouses began to sink due to unfavourable soil conditions and it cost him about $200,000 to solve the problem. This could have been avoided and proper support used in the first place at a much lesser cost.

The land could be “raw” land which means there are no services on the site, such as gas, hydro, water lines, roads, curbs, lights etc. or the land could be “serviced” land which means the above services have been installed. When appraising the land you can ask for: 1. “As Is” value 2. Value after zoning approval, site plan approval, etc. 3. Value after servicing The appraisal must be done by an AACI appraiser. The only exception being a single residential building lot which can be done by a C.R.A. Interest rates on land can range from 6.5% to 10%. The broker and lender fees combined can range from approximately 2% to 4% of the loan amount, depending on difficulty due to location and covenant. 16 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA

In most cases you will also require a Geotechnical report which identifies the soil conditions such as clay, silt, etc. in order to determine favourable areas and non-favourable areas to develop.

There are many other considerations, such as environmentally protected land, restrictive covenants, easements, etc. _____   Rena Malkah, C.P.M.B, CYR Funding Inc. License # 11681. For more information about financing land contact Rena Malkah directly at 647-838-5061 or You can also visit

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FROM DERRICK’S DESK   CYBER SECURITY LOCKDOWN Many Canadian small and mid-sized enterprises (“SMEs”) appear to be operating on Cloud 9 when it comes to data and privacy security. It’s understandable. Business owners no longer need to worry about purchasing and maintaining servers. You can outsource data storage to cloud providers for a fraction of the cost. Mortgage Lenders can focus on serving customers, investors and mortgage brokers while someone else can take of “your” data and information. WHO IS RESPONSIBLE? The Personal Information Protection and Electronic Documents Act (“PIPEDA”) states that companies are required to protect the data and information that they collect from individuals. Therefore, your firm is responsible for protecting the data and information you receive from individuals and companies. It does not matter if you store the data with a third party; you are required to protect the data. We always encourage lenders to review the

agreements in place with their data storage providers and IT subcontractors. Do your service providers indemnify your organization if your data is compromised while in their care and domain? In most cases the answer is “no”. LENDERS ARE DATA COMPANIES The comment I hear most often when I speak with owners of MICs and mortgage funds about their data security and privacy risk is that they do not believe they actually have much of a risk. However, lenders collect employment information, income figures, tax information, addresses, emails, date of birth, drivers licenses etc. The data security risk exposure is even higher for those lenders with a related company registered as an exempt market dealer because you hold personal financial information on the investors in the 18 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA

mortgage fund. The cyber security experts would classify mortgage lenders as high risk targets for data theft. The personal information you collect when conglomerated with other data becomes very valuable. Cyber criminals are often trying to create profiles of us in order to sell the data on the dark web. It is a $300 billon dollar industry. THE PRIVACY LAWS ARE CHANGING The rules under the Digital Privacy Act (DPA) will become more stringent in Q4 2017 as legislation is being drafted for mandatory notification of a privacy breach. Currently, Alberta is the only province with mandatory reporting for private sector organizations to notify individual of “loss or unauthorized access to or disclosure of personal information” when there is a “real risk of significant harm.” The new Federal legislation will likely have a very broad definition of “significant harm”. Mortgage lenders need to understand their risk exposure if they are required to notify every affected individual in their database. You can be certain that the cost will be more than $100 per record and the big risk is lawsuits. When individuals are notified it just takes one person to contact a lawyer experienced in launching privacy lawsuits. HOW DO YOU PREPARE? 1. Education: IT costs are climbing quickly for most firms so spending more on IT security can be prohibitive. Therefore, the biggest bang for your buck is training. The costs are low; the investment is time and effort. However, the opportunity cost of ignoring training is high. Explain to employees why certain policies and procedures are in place, and why it is important they be followed 2. Security Audit: Hire a third party firm specializing in network security and privacy audits to come in and audit your systems, premises, policies and practices. They will make recommendations that are often easy and inexpensive to implement that can dramatically improve your risk profile 3. Cyber Insurance: Unfortunately, education, robust IT security systems and an audit from a security firm cannot guarantee you will be spared a breach, so work with your insurance broker to quantify your risk and see if financing some of this risk with a Cyber Insurance policy makes sense. _____ Derrick Leue is the President of PROLINK Insurance. Please contact PROLINK Insurance to learn more about their Cyber Insurance program for lenders at 1-800-663-6828 or

675 Cochrane Drive, Suite 104, West Tower, Markham ON, L3R 0B8

W: 905-886-5352 F: 905-886-5974 License # 11887/12558

OPPONO IS A NON-TRADITIONAL MORTGAGE LENDER. WE UNDERSTAND IT CAN BE FRUSTRATING DEALING WITH TRADITIONAL LENDERS AND INSTITUTIONS. Our common-sense approach to underwriting means our decisions are not based on credit or income. We are equity and Loan-to-Value driven. With this approach, we are able to help your clients secure the mortgages they want, when they want. If the investment makes sense, we will fund it.

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Given the varying performance of the stock market and most public forms of investments over the last few years, it is encouraging to see that there are alternative investment vehicles to help investors diversify their portfolios. That said, most investors are continuing to be satisfied with low returns and volatility that have subjugated the market over the last decade. For the average investor in this new perilous environment, many are now looking for the promise of better returns and transparency. These investors who are in hope for “alternative” types of investments (such as real estate and mortgage investments) to provide returns alike as many baby boomers are in search of a safe and happy retirement. Unlike traditional mortgages in which a bank loans an individual money for home ownership, syndicate mortgages are private loans that stem from groups of investors. These groups typically lend to developers in the preconstruction phase (also known as the soft cost phase of development). Due to the fact that banks are inclined to lend less and less, the market of syndicate mortgages has grown exponentially. All investments carry risk, although all are not equal. There is little differentiation between syndicated mortgages or pooled mortgage investments. These mortgages and investments provide mezzanine lending to development projects as well as syndicated mortgages. Therefore, in the mindset of most investors in these certain types of deals it appears that all “Syndicated Mortgages” are created equal and possess the same risk profiles. These uncertainties can have major consequences for our industry if not addressed properly. For example: it is the underlying asset which secures the mortgage and the terms of the contract along with the history and experience of the borrower/developer, the credit worthiness of the borrower/developer, availability of proper property insurance, title insurance, expertise of the lawyer closing the transaction, location of the property, availability of debt coverage, key underwriting data including “Loan to Value Ratios” / “Loan to Cost Ratios”, real equity of the developer and many more factors that define the risk associated with a mortgage investment. A syndicate mortgage or “pooled mortgage investment” if vetted properly alongside the right developer can diversify your portfolio and provide excellent returns. The following are some things to consider: 1. WHERE IS THIS PROJECT IN THE DEVELOPMENT STAGE? Preparing a project to be “shovel ready” or ready for construction requires a lot of work. Things to consider include: Permits, entitlements from city council, environmental concerns to name a few. Many companies have raised money prior to these critical stages in the approval process. This in itself creates major delays with the possibility of the project not moving forward in a timely fashion.



2. ARE THE DEVELOPER’S INTEREST IN LINE WITH MINE? There are offerings when developers have invested their own personal capital and have put themselves in 3rd position behind the bank and you, the investor. This does not ensure the success of the project but is an indication they believe in their product. Its important to ask the developer what equity they inject into the project. 3. TRACK RECORD. The previous experience of the builder and the development group is a large indicator of success. If past projects have been on time, on budget or have a history of returning principal and interest to investors, these are all positive indications. Salespeople may not voluntarily offer information about unpaid interest and lost capital, so be sure to ask the hard questions and investigate the truth behind deals and who is furnishing those deals. 4. DIG DEEPER. Don’t believe everything you hear or settle for surface level information, whether this is from the developer themselves or the person promoting the investment(s). Third party research and fraud prevention firms, will conduct a full forensic accounting / financial report of a company as well as it’s partners and business history of an individual. Be sure to ask for important information like appraisals, history of developer and their projects, ask to see loan agreements and the form 9D for more detailed information on the moving parts of a syndicated mortgage investment. 5. MARKET SUITABILITY. While the saying “location, location, location” is true, there are other details to consider. Is the area over-developed? What are the demands? What is the current zoning of the area being developed? Is the real-estate heavily affected by changes in industry - “as what we have seen in the oil industry out West?” What are the city’s plans for development and revitalization? What are pension funds doing in this area of investing? Be sure to know what you are investing in. The landscape of the syndicate market is constantly changing and FSCO or future unforeseen mortgage regulators will govern with more scrutiny in the years to come. It has become clear that the media has misled the public, and perhaps influenced some regulators to look in the wrong direction at certain times. This has been accomplished by distorting the true meaning, proper definition of structuring, and terminology relating to the mortgage investments sector. _____ William Ball is the President of Business Development at Landmark Capital Ltd. For more information contact him directly at 416-721-9023 or visit

LANDMARK CAPITAL LTD. Products are offered only through Landmark Capital Ltd. (Broker Lic# 12493). Borrowers or  potential syndicated mortgage investors must consult one of our Mortgage Agents for product suitability and receipt of the  applicable information required to make an informed decision. e content is presented for information purposes only,  limited in scope and does not contain all applicable terms, conditions, risks associated with our products. No representation,  guarantee, warranty is expressed or implied as to accuracy or reliability of information.




Investing in mortgages provides Private Lenders with an attractive rate of return. However, the investment decision requires a pro active management both in making the investment decision and in managing the mortgage investment during the term.


Lender projects to earn may not be fully available to them. Private Lenders should not rely on the timing of the loan repayment to fund other requirements as it may not be repaid on the due date.

Vector Financial Services recommends that Mortgage loans are not appropriate for a Private Lender if the interest derived therefrom is needed to pay for necessities such as shelter and food. Furthermore, a prudent investment strategy involves investing your capital into several or many loans rather than a concentration in one loan.

Real estate lending is not without risk, including a risk of loss of principal. Mortgage loans shall be provided on a conservative basis relative to the security obtained. Private Investors are strongly advised to consider all risks associated with investing in a loan before making a commitment to invest and to seek advice where appropriate from independent experts in valuation and construction.

Private Lenders are further cautioned that an investment in a loan is required for the term of the loan. Most loans have a privilege to be repaid prior to the stated maturity date. The income a Private

Most loans remain current throughout the term of the loan with all principal being fully repaid on maturity. However, occasionally loan defaults occur. When a loan default occurs, it does not necessarily


result in a loss of any capital or interest. Often loan defaults are cured within a short period of time. If a loan default is not cured within a reasonable period of time, the Private Lender will demand repayment and proceed to enforce their security. This may include commencing a power of sale or foreclosure proceeding on the underlying real estate as well as a demand on any loan guarantees. Usually proceeds from the sale of the real estate will be sufficient to repay the loan and any accrued interest thereon. However, should the market suffer a downturn or other events cause a diminution of the value of the real estate below the amount due on the loan, a loss may be incurred. Some examples of events that could cause a loan to default include, but are not limited to, the following: MARKET DOWNTURN A Private Lender should endeavor to mitigate risk of a market downturn by keeping loan amounts below 75% of the current value of the real estate at the time of funding, as well as relying on independent appraisals. COSTS INCREASES If the loan is on a ongoing development, additional costs might be identified, which were not included in the budget at the time the loan was underwritten. This risk can be reduced through internal analysis of the project budgets by a third party cost consultant.

BORROWER’S CONSTRAINTS Should the Borrower become unable to continue to fully manage or financially support the project, a default may occur, which may involve a restructuring of the project financing and/or ownership. Refinancing Delays: The Borrower may not be able to refinance or redeem the mortgage at the maturity of the term as contemplated. In this situation, it may be prudent to extend the mortgage to allow the Borrower additional time to refinance or complete the repayment. In summary, a private mortgage lender has to be knowledgeable and proactive to maximize and protect their Investment. _____   Frank Laurie is the President and Mortgage Broker of Vector Financial Services Limited. Brokerage License #10160, Administrator License #11205

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IT’S TIME TO EMBRACE CHANGE IN THE MORTGAGE INDUSTRY AND IN YOUR MARKETING. The Greek philosopher Heraclitus famously said “the only thing that is constant is change”. This was especially true for the mortgage industry in 2016. Just when you thought you had figured things out...there were more changes! What’s a Broker to do? Get used to change. It’s here to stay. The Mortgage Industry that you know today will likely look completely unfamiliar in five years’ time. The lenders, the clients, the approval process, the requirements...who knows what any of that will look like in the future? If change is the new constant, the best way to deal with it is to embrace it. Being proactive is the best antidote to getting broadsided both by regulatory changes and by changes in how prospects and clients find and communicate with you. Embracing the ‘new’ is good: historically, those that jumped on a trend in the ‘Early Adopter’ stage have made millions. Everyone else plays catch up. Or worse yet, they feel change is happening, get stressed and overwhelmed, do nothing, fear to make a move...and eventually get weaned from the herd. YOU ALREADY HAVE A MAJOR ADVANTAGE Huge organizations move like slow, lumbering, cruise ships that often take years to change direction. As an individual Broker, Team Member or even Franchise owner, you are much less constrained. If you are motivated and willing to learn, you can adjust your strategies, update your marketing and see results in a matter of weeks or months. Will it take effort? Of course! Will it cost you money? Very likely. Will you need to make changes? Definitely. Will it pay off? Almost certainly. But what if you don’t want to? That’s certainly an option. You can keep on doing things exactly as you do them today. 24 • PRIVATE MATTERS TODAY • WWW.PMTODAY.CA

You can be a Blockbuster in a Netflix era. You can be the Kodak camera in a world in which smart phones capture high resolution images. But let’s not get negative. Has that much really changed? There are plenty of constants—like the way people behave. Human behaviour doesn’t change very much at all: People do business with people they know, like and trust. Humans are hard-wired to prefer members of their own tribe, which today means people that they know, form part of their social circle, or people that they come to know in some way, and eventually trust. This behaviour isn’t likely to change over the next 1,000 years. People trust word of mouth. A joint study by Google, TNS Global and Ogilvy & Mather found that 74% of consumers identify word-of-mouth as a key influencer in their purchasing decision.1 That’s right—good old-fashioned Sally-toldCheryl-told-Mark. When people have either a really good or a really bad experience, they are quite likely to share it. Millennials and baby boomers rank word-of-mouth as the #1 influencer in their purchasing decisions regarding financial products.2 So you can see that behaviour hasn’t changed much from generation to generation. Testimonials work. Testimonials work on paper…and they work even better online. Search engine optimization company BrightLocal found that 88% of people trust online reviews written by other consumers as much as they trust recommendations from personal contacts.3 Now that’s something you can use to your advantage! Imagine: when someone says something great about your service on the Internet, thousands of people might read it. That’s like your client telling everyone for blocks around what a great experience she had! MAKE IT WORK FOR YOU…ONLINE! These three powerful tools—trust, word of mouth and testimonials—have likely worked well for you ever since you became a Broker. By leveraging them in the online world, you vastly increase your reach. Here are a couple things to consider: Most mortgage consumers are online. According to the Canada Mortgage and Housing Commission (CMHC), 72% of Canadian mortgage consumers research mortgages online. When you know that the vast majority of mortgage buyers turn to the

Internet for information, it’s a good place to have a strong presence! Your clients gather mortgage information on Social Media. CMHC found that 52% of Brokers clients use social media to gather mortgage information, with Facebook being the number one source. Given that only 51% of first time home buyers and 26% of renewers used a Broker in 2016, that’s very good news!4 Think social media is important? You bet it is. All of this news about mortgage clients Internet use may be insightful, but acting on it poses a big problem for many of you. Two problems, in fact: 1. How do I get up to speed on Internet and social media marketing? 2. Wherever am I going to find the time? For every problem, there is a solution. In this case, it’s automation. AUTOMATING YOUR SOCIAL MEDIA MARKETING WILL SAVE YOU A TON OF TIME. Ever feel like you have 10 jobs? Feel like you can’t keep up with all the emails? Ever lost a client because you didn’t follow up or keep in touch? Automation helps with all of that. It’s the number one thing that a Broker can do to “uplevel” their marketing in 2017. Automation involves setting up systems that take care of repetitive tasks for you. It frees up a ton of your time, keeps you top of mind with your contacts, makes you look professional and organized, and greatly increases your chances of getting repeat and referral business. According to Adestra, a marketing automation company, the biggest benefits of automation are time savings (74%), increased customer engagement (68%), more timely communications (58%) and increased opportunities, including upselling (58%).5 START WITH SIMPLE You can set up some very complex and powerful systems, such as Marketo and Hubspot. These are full-service inbound online marketing services that are likely well beyond your needs and budget. Setting up and fine-tuning these systems can be very labour intensive, expensive and technically challenging. Let’s go with something simpler. Let’s start with keeping in touch with clients, prospects and referral sources on Facebook. First off, add clients and prospects to your professional Facebook profile. That’s essentially a WWW.PMTODAY.CA • PRIVATE MATTERS TODAY • 25

ADVERTISERS INDEX business profile connected to your personal profile, with your logo and photo on it. You can send a Facebook friendship request and/or ask people to ‘Like’ your business page. Do this for everyone with whom you chat about mortgages, private lending, real estate, investing or any related topics. Facebook is a very non-sales-y way to connect with people, and it’s a great conversation opener: “Are you on Facebook? Let’s connect.” It’s as simple as that. Now that you’ve got your contact added, what’s next? Well, you can go about social media in one of three ways: Scenario One All week long, you add everyone that you can think of to your profile. Then you start posting pictures, links to mortgage-related articles, and of course feature your company logo. You post 3 times a day for the first week. You feel excited, people are liking your page or posts, and you feel like you’ve got this. And then you have a client emergency. The deal is falling apart. They desperately need your help.So you stop updating social media. You tackle the file and finally find a lender that will take it, and it all works out. You think about updating your Facebook, but another file gets in trouble and you deal with that. This happens on and off, for 9 months. Now you haven’t posted to Facebook in 9 months. You feel bad about it, and you have no activity on your page or profile. It turns out that a happy past client of yours referred a friend. They googled you and the first result was your Facebook page. When they see you haven’t updated your page for 9 whole months, they have second thoughts about you. Hmmm. Not the best first impression. The referral ends up calling a different Broker that another friend referred. There didn’t seem to be much of a difference between the two Brokers, and the second Broker, despite also not posting to his Facebook page for months, answered her email faster. Scenario Two You use a service that automatically posts to your Facebook page with articles related to mortgages, real estate trends, how to save for a down payment, creative financing options, and some fluffy design and decor stuff.


A referral prospect clicks on the links, scans articles from various media sources that ‘you’ posted, are educational in nature and not sales-y. The last post was 2 days ago. “Wow”, thinks the prospect. “This Broker seems to be pretty organized and up with the latest news.” The prospect contacts you and not the other Broker who was recommended. You’ve since pre-approved the prospect and she’s going home shopping this weekend. Scenario Three A client is looking for a Broker to help with real estate financing needs. Their real estate agent passes them your name and they google you. The search results list your website first, and your Facebook page second. Your website looks good. Clean, polished and professional, but with no information specific to you. It seems quite similar to other Mortgage Broker websites that this prospect has visited. You have access to the same number of lenders, say that you work for the client not the bank, and that you have great service. Nothing new here. So the prospect clicks on your Facebook link and finds regularly posted, educational articles on mortgages, down payment savings tips, private lending and creative financing options, and design and decor advice. All posts lead to trusted media sources, and don’t mention other Brokers who are ultimately your competitors. In addition, every fourth post is a glowing testimonial from happy clients. There are many ‘Likes’ next to each testimonial. It looks like a lot of people agree that you really know your stuff! The prospect calls you, already feeling very positive about their experience. They are halfway sold, even before they have established contact. Your first deal together closed last week. YOU CAN’T DO EVERYTHING YOURSELF So, how did this all happen? With Scenario 1, you tried to do everything yourself. You wanted control. You felt that you needed to maintain your voice, use your own words, and it seemed like it would be pretty easy to do. Until reality struck...and then you didn’t update your page. Eventually, when prospects looked you up online and saw that your Facebook page was outdated, it created a bad brand image, which reduced the chances of prospects calling you.

In Scenario 2, the prospect saw that you were on top of your game, and came away thinking that you are digitally savvy, would be quick to respond via email or text—the prospect’s preferred modes of contact. A positive brand perception was created, with the assistance of a marketing automation service. In Scenario 3, you came across as the ultimate, highly recommended professional with whom everyone seemed to have a positive experience. Your brand image was extremely positive, which pre-warmed leads nicely, and you didn’t need to sell prospects nearly as much on working with you—they were already pre-sold. The best part of it is, you did very little yourself. That is the magic of automation. With all the changes that our industry is experiencing, it’s hard for Brokers to keep on top of their workload, let alone all aspects of marketing. New government rules, new lender requirements, different products on the market, lenders updating their’s a lot to keep on top of. Add to that the sheer amount of paperwork and document chasing that being a Broker entails. You pretty much spend all your time on those two things, right? For Brokers looking to up their game and claim their advantage in this shifting market, your marketing will need to change. It’s time for you to stop keeping your business a secret. It’s time to put yourself out there. You will find that automating some of your business tasks, such as social media marketing and testimonials, allow you to promote yourself without having to do all the work yourself. _____ Ingrid Menninga is the founder of JOLT Marketing, Canada’s largest provider of “Done for You” Social Media for Mortgage Brokers. To join her upcoming webinar “How to Automate your Social Media and FREE Make Your Testimonials Viral”, visit: webinar SOURCES 1.

2. 3. 4.



Consumer behavior comes under the spotlight in new study, Ogilvy & Mather, 2014 Press-Releases/June-2014-Consumer-behavior-comesunder-the-spotlight-in-new-study.aspx The True Value of Social Word-of-Mouth Marketing, Radius Global Marketing Research https://blog.loginradius. com/2014/07/social-word-of-mouth-marketing/ Local Consumer Review Survey, BrightLocal, 2014 http:// 2016 Mortgage Consumer Survey, CMHC https://www. mortgage-consumer-survey-2016.pdf Marketer vs Machine, Adestra, 2015

ADVERTISERS INDEX 03 Canadian Mortgages Inc.

07 New Haven Mortgage Corporation

17 CYR Funding Inc.

19 Oppono Lending Company

22 Dolphin Enterprises Ltd.

10 Paramount Equity Financial Corporation

15 Indigoblue Financial Group Inc.

27 RESCO Mortgage Investment Corporation

21 Landmark Capital Ltd.

10 Tribecca Financial Corporation

28 Magenta Mortgage Investment Corporation

02 Vector Financial Services Ltd.

INFO@RESCOMIC.CA 1-844-66RESCO OR 1-844-6673726

PMToday Spring 2017  

Every quarter PMToday zooms in on a particular private lending topic that is essential to the collective knowledge of mortgage professionals...

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