Westboro Mortgage Investment LP has suspended redemptions, the latest alternative lender to stop investors from taking their money out because of the tumult from the coronavirus pandemic.
“Given the current lack of visibility on the severity and duration of the economic downturn, our management team has concluded that it is in the best interest of the fund and all fund investors to temporarily suspend redemptions for a period of time,” Westboro said in a letter to investors obtained by The Globe.
The Ottawa-based lender mostly provides residential loans in southern and eastern Ontario and its portfolio holds more than 800 mortgages, according to its website.
“There have been no redemptions paid out since the crisis began. It was determined that the temporary suspension will protect the long-term interests of all unitholders during this period of economic uncertainty and limit the effects of the pandemic,” the letter said. Westboro did not immediately respond to a request for comment.
Westboro is one of hundreds of mortgage investment corporations that have blossomed as demand for real estate has soared. Although alternative mortgage providers have been around for decades, the number has spiked since the Great Recession as rising prices and stricter bank underwriting standards have made it harder for some home buyers to qualify for a loan from a bank. As well, demand from investors increased as they expected to get a higher return with real estate-related assets.
Mortgage investment corporations pool funds from individual investors and those funds are used to provide loans to real estate borrowers.
However, the slowdown in the economy has prompted some real estate and debt funds to halt redemptions. That includes two of the country’s largest private debt funds, Bridging Finance Inc. and Romspen Investment Corp. Romspen said it was reasonable to assume that distributions will be reduced.
As well, Vancouver-based Trez Capital, which provides mortgages to commercial real estate developers, froze redemptions on more than $3-billion of investors’ assets. And Canada Life Assurance Co. has temporarily halted all investor activity on its Canadian real estate funds.
The huge loss of employment has increased the risk that more homeowners will default on their mortgage payments, which would reduce returns for all lenders. Since the end of April, the country’s biggest banks have provided mortgage deferrals for more than 700,000 Canadians. The national housing agency, Canada Mortgage and Housing Corp., has estimated that 10 per cent of homeowners with a CMHC-insured mortgage has deferred payments.
Westboro said it would continue to pay its regular annualized 6.5 per cent dividend for April. “There has been no indication of a decrease in real estate values, but it is very early and the fallout from the current lockdown on the housing market is unknown,” said the letter. “We are monitoring the return on a monthly basis and will notify investors of required changes to the advance rate in future months.”
Home sales in Ottawa, Vancouver and Toronto have dropped precipitously in April, but overall prices have remained steady or increased. In Ottawa, the average selling price of a residential property increased 7 per cent over the previous year, according to the local real estate board.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.