Show Notes
Thanks for taking the time to listen to my message today. For those of you that don’t know me: my name is Michael Hapke. I’m the president and CEO of Advanced Mortgage Investment Corp.
I thought I’d try something a little different this time. I’m going to do a 10- to 12-minute voice message as a means of trying to communicate in a timely manner to all of our investors during this unprecedented time.
Over the past four weeks or so I’ve had the pleasure of speaking with almost each and every investor personally. When making those calls, I did get some voice mail while others didn’t give me an option to leave a message at all, so I thought I’d give this type of messaging a try. Hopefully it’s well received.
As a reminder to the dozen or so that I didn’t speak with personally: please feel free to call me directly. If you do have any questions you can reach me at (613) 656-0866. That number will ring directly through to my cell phone, so it’ll get ahold of me even when I’m working from home. Or if you do prefer you can also email me at mikeh@AdvancedCapitalCorp.com.
So let’s get started.
I’ll take us back here to March 13th which was really the first day when everyone’s world began to change. It was that day when we really started to think about what we were seeing unfold and what it might mean to the way we do business on a daily basis and potentially the impact for our investors both new and existing.
The following two weeks—being the week of March 16th and 23rd—I tasked my team of underwriters and our in-house CA CPA to go back n to our existing mortgage portfolio and do a very deep dive into every single mortgage that we hold to essentially try to identify any potential issues. So we’d look at things like income source, credit score, loan to value, was it a principal residence or investment property.
Keeping in mind also that we’ve always been a very conservative lender by nature but given the new world reality we really wanted to go back and have another look at every single mortgage we had on the books with a new perspective or lens to try to identify any of these potential issues ahead of time so that we’d have the opportunity to perhaps address them as sooner rather than later.
What we discovered during that time and review is that our portfolio was extremely well positioned to manage through this crisis. And it’s my belief that we’ll perform as expected during this time. In fact, you know we may even outperform given we’re seeing some really good quality deals right now as well. We’ll get into that a little bit later.
It’s important to note as I have mentioned that AMIC has never been a lender of last resort. In fact, as at March 26th our weighted average credit score in our portfolio was sitting at approximately 717. I know that that number may not mean something to everyone, but that credit score is considered very good— a very good rating in with the maximum score being 900 so a really good quality of borrowers within our portfolio.
One thing I did want to mention is that it’s really important not get caught up in headlines. I recognize that it’s easier said than done but one has to keep in mind that these news headlines are simply designed to grab your attention. It’s also one perspective or take and is often communicated a blanket statement.
These news outlets and freelance writers flourish during these times of turmoil. Headlines are really designed to get people to click and read that article. Quite frankly the worst the headline is, the better chance that people will click on it and read it.
It’s really important to understand what the purpose of some of these articles and headlines are designed for. We know that covid-19 will have a devastating effect on many businesses. That’s simply a fact. And we know some real estate sectors will also be affected. But what real estate? That is the question that you have to ask. Is that commercial? Is that high rise condos? Is that that office towers? Industrial? High-value residential?
We need to look at sector-specific data and not just blanket statements and make decisions that one statement basically means all real estate. That’s really, really important.
If you take a moment to dig a little deeper you will find that real estate activity is dictated by many different factors like employment, prices, rates—and in today’s environment even the ability for a real estate agent to actively show a property to a prospective buyer. However real estate values come down to one major factor in my opinion and it really is economics in its simplest form in that it’s supply and demand.
Supply and demand is the biggest factor when determining real estate values (property values).
To put into perspective a little bit, Ottawa was on pace for approximately 20% to 30% increase in values depending on what type of property you were looking at prior to the COVID event. Why? Simply because there was a lack of supply. It’s plain and simple. There were more buyers than there were sellers so that started to drive prices higher.
Once the COVID event hit, that supply and demand issue did not disappear. I agree, yes: transactions will slow because we simply have less buyers and less sellers that are transacting right now but that doesn’t change the fact that we still have a housing shortage in Ottawa. People are looking for homes and we know this firsthand because we deal with these individuals every single day.
Nobody right now is selling their home at a discount because of COVID. And if they did, trust me that it would get snapped up in a heartbeat because it would be seen as a is a great discount at this point in time. But we’re simply not seeing that so that’s not the case.
When it comes to knowing and understanding the real estate market in Ottawa, essentially, we work on the front lines. We see the contracts for the new purchases every single day. We also get appraisals from licensed appraisers on those specific properties reverifying those values. Even when those purchase agreements come in, we’re seeing some scenarios where the purchase price is actually above the list price. Those types of transactions are still happening and that shows me that there is still a great demand out there for real estate.
If COVID was in fact starting to impact the real estate values, we would simply be one of the first to know because we are on the front lines of these transactions. We would know before any article is written or before any economic forecast because we see in real time what’s happening.
As mentioned before, we’ve always been a conservative lender but we also recognize the new world reality is that although we continue to lend and fund mortgages we also know that some people could have reduced income or job loss in the future. Although we are confident in the real estate values, we always want to make sure that our borrowers can continue to pay as well.
So what we do now on most of our newly funded deals is we take anywhere from a 3 to a 12 month payment reserve and we would hold that in an escrow account for them. In the event that someone has missed a payment or if they lost their job and they weren’t able to make the payment we would simply be able to make that payment for them. So that gives them a little more flexibility. It also gives us the flexibility and reassurance that the mortgages we are funding today will not be impacted.
The business that were doing right now is fantastic. The quality of the deals are really, really good. We are happy to fund these mortgages, but we are taking that extra precaution in taking those payments up front. In my mind this is a win-win not only for the borrower but also for the portfolio as well. It works for us and for our investors.
I also want to mention that in April we were quite happy to report that we had no NSF payment from our mortgages in our portfolio. We did have three requests for payment deferral, but we haven’t had many of those many of those requests. But it is important to note that we are well–prepared to have these discussions when people do request them.
When we are presented with a request to defer, we go through a very detailed questionnaire about the need for the deferral. We also mention that any false or misleading information could put the mortgage into default with us. The reason why we do that is because we feel it’s necessary to be a little bit tough in these scenarios. We don’t want people asking because they may need it or it would be nice to have a payment holiday.
In our minds, this is not a holiday. Unless it is determined that it is absolutely necessary, we expect the payment to be made just like any other given month. So for us it is quite a detailed questionnaire and we really do assert to the borrower that if there is any way possible we do what them to make their payment.
I see that we’re running at almost 11 minutes here now so I will get to a couple of quick points here with respect to AMIC and just as a reminder, basically.
- One hundred percent of our portfolio is residential and it’s Ottawa and surrounding area only.
- We do not use leverage in our portfolio.
- Oue composition of first and second mortgages is roughly 75%/25% seconds, but that does change daily. Right now we tend to do more first mortgages then seconds so I anticipate that 75% number to increase.
- We also have zero loss of principal or interest since Inception and we have no defaults at this point time either.
- Our current weighted average loan to value within our portfolio as at February 29th was approximately 70%
- Our average mortgage size is sitting at about $235,000 which is very moderate as well.
- Something that mentioned earlier was our credit score which is sitting at around 717.
With respect to Ottawa:
- We have a higher average household income per homeowner than in Vancouver or Toronto. I know that is also hard to believe but that is a fact.
- Average home prices are very affordable at less than half of what it is in Toronto or Vancouver.
- Good, stable employment sector with high paying jobs in government and high tech as well as in health and education.
- It also continues to attract more millennials—which is an interesting fact as well—than any other major city (or any other city, I should say) in Canada. Those individuals are looking for a good–quality high–paying jobs as well which is great for us because that continues to build strong demand for the housing sector.
I will add that I do believe that some residential markets could suffer a bit of a pull-back in value (in particular Toronto and Vancouver) simply because those markets have been running hot for many, many years now. Because of the massive supply in the condo market sector I could see those values cooling off.
But I will also add that I don’t believe it’ll be long–lived and I do believe we will see those sectors also recovering fairly quickly.
All told, I do believe that Ottawa and Advanced Mortgage Investment Corp are still very well aligned for success and stability as we navigate through these uncharted waters. And given that we’re still actively funding mortgages, we’re still actively raising capital. So if you’re interested we are continuing to raise: in fact, it starts in about a week and a half, I guess, on May 1st which is when the next raise is scheduled for.
So I will summarize and then close up here. Thank you for listening. Again, if you do have any questions or if you’d like to discuss anything about your own portfolio or whether or not you’re interested in reviewing AMIC as a potential investment option, please feel free to reach out to me directly. It’s mikeh@advancedcapitalcorp.com or call me at (613) 656–0866.
Just as a reminder you can also visit our website for the most up-to-date portfolio information at advancedmic.com. If you click on “Investing” you can also go to “COVID-19 Update” which will give you all of the very latest information.
With that: have a great day and best wishes to you and your family during this very difficult and challenging time. Keep well. Thank you.