How it is all possible:
Security - How secure is my investment in WMIC?
As mentioned, Westboro invests the majority of its funds in residential first and second mortgages with the total loan to value of the mortgage never exceeding 85%. This implies that there is always at least 15% of equity remaining in the property which essentially serves as a guarantee for the loan in question. All properties are good quality real estate and have all been appraised by accredited appraisers in order to determine their current market value.
In a scenario where the mortgager (borrower) has accumulated extended non-payments, cancelled the property insurance, or failed to pay the balance on maturity the lender may initiate foreclosure proceedings to have the property sold or the title transferred to the lender. The 15% minimum remaining equity on the property is sufficient to cover the legal costs that Westboro would face in the event of such actions. The legal fees would be added to the principal of the mortgage and would be obtained upon the sale of the property. It is important to note that extended defaults on mortgages are quite rare, after all, the last thing any one want to lose is their home.
By investing in mortgages, Westboro is indirectly investing in real estate, which has long been a proven investment. (Please see "Stability" to view details on the real estate market)
ROI - Who would be willing to pay such a high interest rate on a mortgage?
There are many cases in which a borrower/investor would be willing to pay for a high interest private mortgage. One of the advantages of a private mortgage is the speed of closing. Conventional mortgages granted by banks can sometimes take a long time to fund, especially if the deal does not fit their rigid standards. In such a case where time is of the essence a borrower would be willing to pay a higher rate in order to obtain the required financing on time.
Borrowers might not want or be able to provide personal financial information or go through the application process associated with obtaining an institutional mortgage loan. The borrowers may be going through a divorce or business separation and may not want his wife, partner, government, lawyers, etc. to obtain his/her personal financial statements. The borrower may also not have all the financial information up to date or complete and would therefore not qualify for a conventional bank loan.
With the amount of self-employed individuals in today's market place, many lenders have tried to accommodate this niche market, however many of those entrepreneurs fall through the cracks of these specific programs for many reasons. For example, the individual might not have been in business long enough, his declared net income might be too low, etc. Private mortgages are sometimes the best, if not the only, alternative for these people.
Another reason why a borrower would need a private loan could be because of the type of property being purchased. Institutional lenders are quite specific on the types of properties they will finance, the acreage they will consider, and the zoning of the property. Any one of those factors deemed "unusual" would most likely result in a declined loan by the institution, hence the need for private funds.
Institutional lenders will often be quite reluctant to lend individuals with previous or existing credit problems, no matter how sound the deal. A one year discharged bankruptcy, with employment stability, a good income, and a 25% downpayment would encounter problems obtaining a mortgage loan through a bank, even though the risk for the lender is minimal. In such a case, a private mortgage would be ideal for the borrower while he/she re-establishes his/her credit.
Stability - How stable is the investment?
Part of our philosophy is to offer investors with a stable, steady stream of income. We are presently distributing monthly dividends of 8% (at an annual rate) and will be redistributing the remainder at the end of our fiscal year.
As mentioned, the majority of our revenues are obtained through interest payments made by the mortgagors on a monthly basis. Having a steady revenue stream is what enables Westboro to distribute stable dividends on a monthly basis.
Westboro does not invest its capital in speculative, variable commodities. Unlike investing in stock, bonds, or other instruments, we invest in mortgages which indirectly results in an investment in real estate. While real estate investments aren't inherently risk free, they have proven themselves to be stable and profitable investments over time. The value of a property does not flucuate like a stock or mutual fund. A large part of aggressive mutual funds have flucuated greatly in the 2000's, some investors have seen their portfolio drop upwards of 20% in a single year. According to the Ottawa Real Estate Board, average MLS Residential & Condominium sale prices for the Ottawa-Carleton Region have only posted negative returns five (5) times since 1956. The worst decline was of 4.3% in 1961. Which, is minute compared to the mutual fund industry.
