When investing in mortgages, it’s important to understand how the approval process works. How underwriters make credit adjudication decisions and conduct due diligence can affect your investment outcomes.
CMI Mortgage Investments is a leader in Canada’s private lending market, having funded over $1 billion in private mortgages across the country. CMI’s success is rooted in professionalism, transparency and industry-leading due diligence practices.
CMI’s credit manager Vadim Finkel discusses the mortgage adjudication process, and how it plays a pivotal role in protecting the interests of investors.
Trusting the Process
Mortgage adjudication involves analyzing all the details of the borrower, including their income, assets, debts and repayment history, to determine their loan eligibility, as well as the details of the property being purchased. The goal is to ensure that all loans processed by CMI meet our rigorous lending standards and risk profile.
The adjudication process review examines the location and quality of the property, the client’s ability and likelihood to repay their loan, Know Your Client/Anti-Money Laundering (KYC/AML) guidelines and an internal risk-reward assessment developed by our credit team.
In practice, CMI’s adjudication process evaluates five credit factors in determining approval of a borrower’s application.
The Five Cs of Credit Adjudication
- Credit Rating: A borrower’s likelihood to repay a debt obligation based on their previous behaviour. A higher credit score increases the likelihood of a loan application being approved.
- Capacity: A borrower’s ability to repay a loan based on their income relative to expenses. For mortgage applications, gross debt service and total debt service are the two most commonly used ratios.
- Capital: A measure of the borrower’s assets and overall net worth;
- Collateral: When it comes to mortgages, the underlying property is used as collateral in the event of a default;
- Character: Assessing the borrower’s profile and unique situation (i.e., profession, job stability, income streams, reason for the loan, etc.) also determine their loan eligibility.
Conducting Due Diligence
All mortgage applicants are assessed based on their capacity and willingness to pay, the type of solution they are seeking, and their exit strategy – what they plan to do at the end of the mortgage term. Each file is broken into the verifiable components, such as credit review, income capacity review, and exit strategy indication. A range of supporting documents are obtained, ranging from banking and investment statements to income confirmation via a Notice of Assessment (NOA), to support and substantiate the borrower assessment.
Properties are assessed internally and through a third-party appraiser. During this assessment, our adjudicators work with our legal team to flag potential concerns or signs of material adverse changes that could affect the property value or the borrower’s ability to repay the loan.
The closing and fulfillment process requires validation of all information and documents provided, and assurance of the state of the subject property. This rigorous due diligence process ensures AML and KYC requirements are satisfied, and that losses are minimized in the unlikely event of default.
When a mortgage is up for renewal, our loans are reviewed for performance and market trends. We facilitate the entire renewal process, including discharging the loan when it’s paid off.
Key Considerations for Credit Adjudication Decisions
CMI considers several key factors before making a final credit adjudication decision for each loan application. Borrowers who have a good credit history, demonstrate consistent and reliable income (whether through employment or business ownership), have manageable debt levels and own property in a desirable location are more likely to get approved. Because CMI isn’t bound to the stringent lending rules of traditional banks, we are in a better position to gauge a borrower’s circumstances before making a final decision.
Although CMI takes a comprehensive approach to evaluating borrowers and making a final decision on their applications, deal-breakers that can result in an application being rejected include KYC/AML flags, current or past criminal activity, severe cases of adverse credit or delinquency, and requests for unreasonable loan-to-value ratios (unreasonable differences between the loan amount and the current market value of the property). If a property is in poor condition or in an undesirable location, that could also impact loan eligibility.
The Role of Technology
CMI is a leader in employing the latest technologies to streamline our mortgage lending, adjudication and portfolio management practices. All mortgages submitted by third-party brokers are processed through our Filogix platform, enabling the efficiency and safeguard of all supporting documentation. We’ve invested heavily in proprietary technology to supplement the work of our credit managers, who handle every deal we receive. This gives us the right balance of human oversight and technological capability that’s enabled CMI to become a trusted name in the mortgage industry.
CMI Stands Out from Other Private Lenders
Embracing technology, building relationships and establishing industry-leading due diligence and risk mitigation practices have helped CMI become one of Canada’s fastest-growing mortgage lenders. We value our clients and our partners, and are clear with our business decisions and pricing expectations. By striving to find solutions for the most difficult files, we service borrowers and broker partners without compromise. As a part of CMI Financial Group, our fiduciary duty is to our investors. Investors who recognize our commitment to sound lending practices can be confident that their investment is in expert hands. CMI’s track record in meeting our investment objectives is second to none in Canada.
How CMI’s Due Diligence Benefits Mortgage Investors
CMI’s risk management and due diligence practices ensure that we only fund high-quality mortgages not just on the aggregate level, but also on the individual loan level. While it’s impossible to mitigate all risks and outcomes, we are one of Canada’s leaders in providing risk-priced investments that are attractive to investors who are looking to diversify their portfolios with mortgages. Our risk management practices minimize potential losses with a risk-based approach for each mortgage we finance. As an investor, this means you benefit from our vast brokerage network, industry-leading adjudication process and personalized portfolio management solutions.
CMI Financial Group has totalled more than $1 billion in successful mortgage placements since inception. In the process, we’ve become one of Canada’s most trusted and fastest-growing private mortgage lenders. If you’re looking to diversify your investment portfolio with private mortgages, we invite you to contact us to schedule a consultation.
CMI Mortgage Investments offer investors direct exposure to Canada’s largest mortgage markets with a strong focus on risk management and geographic distribution. Learn more about our investment process or contact one of our investment managers for a free consultation.