Advanced MIC uses several tools and methods to determine and monitor the value of the properties that secure the MIC mortgage portfolio.
These methods are employed by the MIC manager Advanced Alternative Lending (or “AAL”) which, among other duties, originates and underwrites for the MIC. As per the Offering Memorandum (or “OM”), AAL is related and connected to the MIC by virtue of common ownership and control.
When an application is initially received, MIC underwriters will pull a Purview report via Teranet. A Purview report provides an automated computer-generated valuation (sometimes called an “AVM”) for most properties. It also shows the property’s legal description, location, last transaction or sale date and transaction value, the names of the legal owners of the property and whether or not the property is encumbered by any mortgages. Purview’s data is sourced from information available in the Ontario Electronic Land Registration System which is owned and operated by Teranet.
A Purview report is also typically pulled during renewal or when a borrower requests a modification of the mortgage loan.
The MIC receives an appraisal for all properties against which MIC funds are lent. The appraisal is prepared by a member of the Appraisal Institute of Canada. The appraisers who prepare appraisal reports for the MIC typically possess an AACI or CRA designation, or are a candidate for same (with supervisory review and signoff).
- This appraisal provides the MIC with the appraiser’s determination of the property value as of the appraisal date.
- The MIC’s underwriters may opt, upon receipt of the appraisal report, to seek additional information about the property from sources like a knowledgable realtor, a property inspector or other professional.
- When assigned to the MIC by the appraiser, the appraisal becomes the property of the MIC and the MIC and its manager are the sole authorized users of that report.
- Because appraisals contain personal information, the reports are not available for public or investor scrutiny. However the reports may be included in the annual fiscal audit performed by Welch LLP. While the auditor will not review all of the appraisals, the appraisal reports will be reviewed for mortgages that form part of the audit sample.
Where an AMIC mortgage has been renewed for several terms, and where the MIC manager determines that it is prudent, a new or updated appraisal may be required to be ordered for the MIC by the borrower(s).
Where AMIC registers a mortgage on a supplemental or blanket property (for additional collateral only, not as primary security for funds advanced) the underwriters may determine that an appraisal on that supplemental property is not required and may rely (with the consent of the lending committee) on a Purview report or other valuation method.
The value of a supplemental or blanket property being used for collateral only is not included in portfolio statistical calculations e.g. weighted average LTV.
After a mortgage is funded, in the absence of a renewal or modifiction request, the MIC manager monitors the value of the portfolio for the purpose of assessing risk and making suitable loss allowances per property (as required by IFRS accounting policies).
The primary tool the MIC uses to monitor portfolio value after funding is a report ordered quarterly from Brookfield Real Property Solutions (or “RPS”).
AMIC commenced using this monitoring tool at the end of fiscal 2018. It has been in use for all of fiscal 2019 and fiscal 2020.
RPS’s portfolio valuations utilize its proprietary House Price Index (HPI) methodology.
The index methodology utilized is a sophisticated geo-algorithm that compares market values at the original point of value with current market values, and then applies this local market index to the original property value. The actual index used depends on the geographic area and Brookfield RPSs’ data coverage.
3 Indices are used by RPS to perform its portfolio valuation:
- Local: Market data at a very local level (Census Tracts, FSAs) is utilized, including factors for the specific property style (i.e. Condo vs. Single Family Detached)
- City/Region: Market data at City or Regional level is utilized, usually including factors for the specific property style (i.e Condo vs. Single Family Detached)
- Provincial: Market data at provincial level is utilized due to the rural nature or low data coverage aspects of these locations.
The House Price Index is calculated on a monthly basis and value are run through a Bayesian filter to remove outliers. Properties with an original value date in the most recent months are not valued. However, for these properties, even though value is not calculated, current market trending data is provided to understand current median values and year-over-year trends for that location.
Housing Market Data
To assist with risk assessment, the MIC manager also takes in data from sources like the following to monitor trends in the housing market:
- Statistics Canada
- Ottawa Real Estate Board
- Brookfield RPS House Pricing Index