What Magenta Mortgage Corporation Does
What We Do
Consistent with the prescribed rules for MIC
operation contained in the Income Tax Act (refer
to WHAT IS A MORTGAGE INVESTMENT
CORPORATION (MIC)?), Magenta MICs utilize
invested share capital and bank credit facilities, to fund a pool of mortgages.
Magenta habitually invests over 80% of its portfolio in first mortgages secured primarily by owner occupied homes, in addition to seasonal cottage properties, residential building lots and land. The balance of the mortgage portfolio is invested in carefully chosen residential 2nd mortgages.
The mortgages are secured primarily by real estate located in Metropolitan Ottawa and Kingston, and secondarily by residential properties located in smaller centres in Eastern Ontario. Census, CMHC and industry data is utilized to analyze local real estate markets on an ongoing basis. Lending activity is concentrated in stable, buoyant real estate markets like Ottawa and Kingston, where a
significant public sector component renders the local and regional economies largely recession proof. The probability of loan loss is dramatically reduced in markets characterized by stable or appreciating property values. Accordingly, more cyclical and volatile markets are avoided. There are prescribed limits with respect to that portion of the portfolio which may be invested in residential 2nd mortgages, mortgages secured by rural properties, and multi-unit residential properties.
These limits are monitored on an ongoing basis and enforced by our corporate bank.
In short, both Companies maintain high quality, low risk residential mortgage portfolios, with a heavy emphasis on residential 1st mortgages and mortgages secured by properties located in stable, largely recession proof real estate markets.
After the individual mortgages are advanced,
the Manager is responsible for all facets of
portfolio administration, including the collection
of payments, ensuring that realty taxes are
remitted, adequate insurance coverage is maintained,
and any prior encumbrances are up to date, renewal,
pre-payment and discharge.
Fee income is an important contributor to profitability and shareholder ROI as reflected in the financial statements. Fee revenue is comprised of Application/Set-up Fees levied when the mortgage is advanced and a variety of Administrative fees and penalties which may be levied post-closing until the mortgage is ultimately repaid and discharged (eg. Pre-payment Penalties).
Magenta MIC Advantages
1. Consistently High Investment Returns/Track
Record
Magenta and Magenta II have consistently generated extremely attractive investment returns since their inception (Magenta: 11.70%; Magenta II: 11.52%). Refer to Investment
Performance.
2. Financial Leverage
Magenta MICs employ a bank credit facility. The substantial
positive spread between the bank loan rate,
and the interest rates applicable to the mortgages
held by the Companies, substantially increases
the investment returns achieved by the Companies and allows for the achievement of elevated investment returns with a low risk residential mortgage portfolio dominated by 1st mortgages.
3. Diversification/Risk Reduction
With an investment of as little as $50,000.,
Magenta shareholders own an interest in a large,
diversified, professionally managed, growing pool of mortgages. Conversely,
direct mortgage investment requires a substantially
greater investment, and has a far greater potential
for actual capital loss.
4. Professional Management/Management
as Owner
Refer to Who We Are.
Magenta MICs are managed by very capable professionals,
with substantial career experience in all facets
of mortgage lending, real estate appraisal,
banking and mortgage law.
Management of this caliber affords a number
of advantages:
- Good Lending Decisions: Our loan loss record is appreciably better than Canada 's chartered banks, notwithstanding the fact that we are ostensibly underwriting mortgage loans that do not meet bank lending criteria.
- Mortgage Sourcing: Magenta's mortgages are sourced by an exclusive electronic network of mortgage brokers. The Companies' Manager Mortgage Development is responsible for all facets of the mortgage origination function, ensuring a steady flow of attractive mortgage investment opportunities, consistent with our prescribed underwriting criteria. To maximize profitability we need to be fully invested on an ongoing basis. To limit risk we need to generate higher quality mortgages that satisfy our lending criteria. Our track record, industry profile and in-house marketing capability allow us to achieve these critical business objectives. The mortgage market has changed dramatically in recent years. Individual, private mortgage investors no longer have access to lower risk mortgages.
- Mortgage Pricing: Because
we are active in the mortgage market on a
daily basis, we have the expertise and knowledge
to ensure that we negotiate the most favourable
interest rates, fees, and other terms and
conditions possible.
- Portfolio/Cashflow Management:
The portfolio is monitored daily to ensure
an optimal mix of different mortgage types
(residential first mortgages, residential
second mortgages, first mortgages on recreational
properties, residential building lots, and
land). Similarly, cashflow is monitored daily,
to ensure that the Companies are always as
fully invested as possible.
- Portfolio Administration:
All mortgage payments are collected electronically
by pre-authorized bank debit. Any arrears,
or potential default situations, are dealt
with promptly, proactively and effectively.
Optimal pre-payment penalties and renewal
terms are negotiated. Discharge statements
are prepared for mortgages not being renewed
and legal discharges are executed and registered.
Management’s consolidated investment in the Magentas exceeds $3.1 million. The Manager has also guaranteed the Companies’ bank debt. In short, Management is highly motivated
to achieve the highest investment returns possible,
while at the same time mitigating risk as much
as possible, consistent with the imperative
of ensuring and protecting the long term viability
of the Companies.
To summarize, Magenta investors have the opportunity
to achieve higher investment returns, with lower
risk through much greater diversification, than
those available through direct mortgage investment,
by investing relatively small amounts of capital,
and without the need to expend the personal
time and energy required to source and manage
direct mortgage investments.
What is a Typical Magenta Mortgage?
 1. Quality real estate, impaired credit (1st)
• 6.7% rate (offset)
• 5.1% retained fee
• 65.38% LTV
• C credit
• Beacons 625/Reject R
• Provable income
• 29.97% GDS
• New home
Quality real estate, impaired credit (2nd)
 • 15.2% rate, compounding monthly
• 2.2% retained fee
• 88.31% LTV
• C credit
• Beacons 536/537
• Tenured employment
• Principal & teacher
• 17.89% GDS
• Urban Ottawa
2. Exceptional covenant, atypical real estate
 • 8.42% rate comp. mo.
• .4% retained fee
• 78.9% LTV
• A+ credit
• Beacon Score 794
• Partner at national law firm;
mid-high 6 figure income
• Second home
• Also a business retreat
3. New home construction, self-employed
 • 9.25% rate, compounding monthly
• 1.25% retained fee
• 18.41% Effective Annual Yield
(excl. draw & discharge fees)
• 75% LTV
• A+ credit
• Beacons 677, 667
• Established restaurant owners
• Contract w/ Tarion builder
• Urban Ottawa
4. Raw land or building lots
 • 10% rate, compounding monthly
• 2.5% retained fee
• 50% LTV
• A+ credit
• Beacon 715
• Salaried insurance broker
• 19.16% GDS
• Building lot for future home
• Ottawa rural fringe |
