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Over the past four decades, advisors conducting due diligence have always been curious about the mortgage side of their Frontenac MIC investment. It’s a story we enjoy telling in these economic times, as the ending just keeps getting better for our investors. Read on to find out why.
Under the W.A. Robinson Group of companies, W.A. Robinson Asset Management manages the Frontenac Mortgage Investment Corporation (MIC) product that financial advisors can purchase for their clients. The Frontenac MIC consists of low-risk, first residential mortgages provided by Pillar Financial Services Inc to homeowners. The interest Pillar Financial receives on these mortgages generates a return for Frontenac MIC investors.
The W.A. Robinson Asset Management business, and certainly the Frontenac MIC product, could not exist without the work of Pillar Financial. The opposite is also true.
The two businesses rely on each other to raise capital from investors to provide mortgages, the interest on which is returned to those investors. This relationship has operated in successful harmony for nearly 40 years.
Local expertise, lower-risk locales
Pillar’s focus is on rural mortgages and mortgages in small Ontario towns and cities. Therefore, the Frontenac MIC is differentiated from any other MIC by having little to no exposure to the risks associated with fluctuating property values in larger urban centers such as the GTA.
These mortgages are sourced from a network of approximately 1,000 independent Canadian mortgage brokers. Pillar maintains deep relationships with these partners and leverages their expertise to ensure the best possible lending decisions are made.
Flourishing in an economic downturn
The core of Pillar’s business is on deals that simply don’t fit into a bank’s approval criteria: self-employed borrowers, borrowers with temporarily bruised (and improving) credit, as well as individual borrowers financing new construction.
The whole model is based on short-term lending. Unlike other financial institutions that have longer mortgage durations, most of Pillar’s mortgages are for one year or less.
Within an environment of rising interest rates, this strategy allows Pillar to continually reprice its loans at current rates and correlate its rate of return to the market.
Rising interest rates and the threat of recession have also impacted lending guidelines. Traditional banks, credit unions and even private lenders are tightening their criteria at all levels.
As a result, Pillar is receiving a larger than usual volume of mortgage applications. This volume has been bolstered by an influx of high-quality applications of a type that would normally have been approved by a Schedule A bank.
This puts Pillar’s pipeline for mortgages at the strongest it’s ever been.
It also gives Frontenac MIC the temporary ability to take in more capital than usual right now.
Advisors need to note that an environment of rising interest rates has benefitted the Frontenac MIC by allowing its Q3 2022 returns to stretch into the upper portion of its usual range of 5-6.5%. Now is an excellent time to invest in this MIC.
Good news in volatile times
Within this finely tuned model, W.A. Robinson Asset Management and Pillar Financial work in synchronicity to maintain a balance between the level of capital raised into the Frontenac MIC and the volume of mortgages approved and advanced by Pillar Financial.
With more investment capital, Pillar Financial will be able to approve and fulfill a greater number of the quality mortgage applications we are seeing today, which will in turn further improve portfolio performance. This yin and yang relationship between investment capital in and mortgage volumes out is vital to the company’s success and requires care, consistency, and commitment to keep everything running smoothly. We call this treasury management, and it is one of the most important contributors to our long-term success in business.
The Pillar Financial, W.A. Robinson Asset Management and Frontenac MIC story offers good news in dreary economic times, especially for advisors seeking a reliable, conservative, uncorrelated performer to help insulate their clients’ portfolios.