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CDPQ Invests in M3 Mortgage Group

CDPQ put out a press release earlier stating it will invest in M3 Mortgage Group to accelerate its expansion:

Caisse de dépôt et placement du Québec (CDPQ) announces an investment in the M3 Group, the undisputed Canadian leader in mortgage brokerage. The investment will allow the mortgage group to continue driving its ambitious strategic growth plan around acquisitions and help expand its digital footprint in the origination ecosystem.

M3’s brand collective includes Quebec’s largest brokerage, Multi-Prêts Mortgages, as well as Mortgage Alliance, Invis, Mortgage Intelligence and Verico. Together, the group offers mortgage brokerage services and insurance products through its network of over 8,300 brokers across the country. M3 recently announced that it has reached record annual lending volumes of over $67 billion and aims to break through the $100 billion threshold in the next two years.

A long-standing culture of innovative technology

In order to simplify and optimize the mortgage financing process, M3 has sharpened its focus on the integration of digital tools and solutions by making a series of technology investments in its leading proprietary BOSS platform. Most recently, the Group acquired Pinch Financial, an innovative leader in the mortgage industry in addition to partnering with a number of high-profile FinTech organizations. The transaction announced today will allow the group to continue its efforts to move the innovation needle and streamline its technology offering to continue differentiating itself in today’s competitive ecosystem.

“This investment clearly demonstrates the confidence that CDPQ has in our values and vision to transform the industry from a position of strength for all stakeholders by putting our brokers first… always,” said Luc Bernard, Chairman and CEO of M3. “Brokers are counting on our help to differentiate themselves with consumers, and the transaction announced today gives us access to considerable expertise and funds that will support our ambitious growth plan and accelerate its execution.”

“Investing in the expansion of businesses that place innovation at the center of their development is perfectly in line with our investment strategy in Quebec. We are delighted to begin our relationship with M3 and to support them in achieving their growth objectives, which will secure their leadership position in the marketplace,” said Kim Thomassin, Senior Vice-President and Head of Investments in Quebec and Stewardship Investing.

“CDPQ’s investment in us is a testament to the organization’s winning strategy and will allow us to continue our ambitious expansion as the leading non-bank originator in the ecosystem,” says Dino Di Pancrazio, Chief Strategy Officer and Head of M3’s Mortgage Division.

Luc Bernard, Chairman & CEO, as well as the current private group of shareholders, will retain a majority stake in the M3 Group.

ABOUT M3 GROUP

The M3 Group is the #1 non-bank mortgage originator and undisputed leader in mortgage brokerage across Canada. With more than 8,300 brokers and $67+ billion in annual loan volumes on a trailing twelve month basis, the broker-led, data driven, consumer obsessed group and its brand collective, Multi-Prêts Mortgages, Mortgage Alliance, Invis, Mortgage Intelligence, Verico, Simplinsur/SimplAssur, Pinch Financial, M3 Tech, M3 Ventures and YourMortgageMarket.com have a single goal: be the best consumer ally when it comes to serving the financial needs of Canadians from coast to coast.

ABOUT CDPQ

At Caisse de dépôt et placement du Québec (CDPQ), we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2021 CDPQ’s net assets total CAD 390 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.

I'm embarrassed to admit even though I live in Quebec, I never heard of the M3 Group. However, I have heard of Multi-Prêts.

As you can read above, the M3 Group is the #1 non-bank mortgage originator and undisputed leader in mortgage brokerage across Canada. 

Their website is a bit dark with all that black but right when you open it, you see this:

And this: 

No doubt, M3 is bold, innovative, impactful and growing fast organically and through acquisitions.

In the statement released by CDPQ, Kim Thomassin, Senior Vice-President and Head of Investments in Quebec and Stewardship Investing, notes: “Investing in the expansion of businesses that place innovation at the center of their development is perfectly in line with our investment strategy in Quebec. We are delighted to begin our relationship with M3 and to support them in achieving their growth objectives, which will secure their leadership position in the marketplace.”

M3 is already the leading non-bank originator in the ecosystem and having a partner like CDPQ will not only allow them to grow, it will provide support when the going gets rough.

Keep in mind, the Canadian housing market is breaking all records but the Bank of Canada is signaling faster rate hikes and that could add angst to Canada’s housing market which appears to be cooling off:

Canada’s pandemic housing boom has attracted a larger-than-usual share of speculators, many of whom took advantage of falling variable mortgage rates to take out multiple loans, but the central bank’s surprise warning this week about an early interest rate lift-off could douse a rally fueled by cheap debt.

Earlier and faster rate hikes could trigger higher payments for many of these buyers, and investors with multiple properties could respond by selling some of them into ebbing demand if their commitments become too onerous.

Already, the housing market has started to cool as fixed rate mortgages rose 60 basis points on average this year, according to Ratehub.ca, tracking rising bond yields. On Wednesday, the Bank of Canada said it could increase its benchmark interest rate from the current 0.25 per cent as soon as April, three months sooner than previously forecast.

Money markets expect a rate hike in March, with nearly 100 basis points of tightening in 2022.

“People living in their homes are a much more stable source of demand; investor demand is much more fickle,” said Philip Cross, senior fellow at the Macdonald-Laurier Institute.

“Once (investors) start seeing that rising interest rates and/or falling house prices makes it unprofitable to speculate on housing as an investment, that source of demand can disappear quite rapidly.”

Investors accounted for a quarter of all August home purchases in Ontario, Canada’s most populous province, the highest in at least a decade, according to Teranet, underscoring the heightened risk in the current housing cycle. They were the biggest group of buyers, a marked shift from 2011 when they were the smallest.

The number of people with three or more active mortgages climbed 7.7% in the second quarter from a year ago, double the pre-pandemic pace, according to Equifax Canada.

HOUSING BUBBLE

Record-low rates have lit a fire under housing demand, pushing some Canadian cities and their surrounding areas into bubble territory. Canada’s 11 per cent home price jump in 2020 was the fourth largest in a 60-country International Monetary Fund housing index. House prices are up another 14 per cent this year, the Teranet-National Bank Composite House Price Index showed.

Swiss bank UBS ranked Toronto No. 2, behind Frankfurt, in this year’s Global Real Estate Bubble Index,with Vancouver at No. 6.

The market is showing signs of easing. The Teranet-National Bank index rose 0.1 per cent in September from August, the fourth consecutive month in which growth slowed from the previous month.

To be sure, few anticipate a broad market crash, as a shortage of inventories and a renewed immigration push are expected to keep a floor under prices, mortgage broker Ron Butler said. A stress test, which ensures borrowers can make payments at a rate of at least 5.25 per cent he added.

Former central bank governor David Dodge also dismissed the likelihood of a big correction.

“There may be some people that made a stupid bet that they could borrow money for nothing forever,” Dodge told Reuters on Thursday. “I don’t have a lot of sympathy, and I don’t think there are many people like that.”

The spike in investor interest has contributed to a rise in borrowing against existing properties. Owners can pay the down-payment on their next property with home equity lines of credit (HELOC), borrowing up to 65 per cent of the existing home’s appraised value, at an interest rate higher than fixed and variable rates.

New HELOC volumes rose 57 per cent in the second quarter from a year earlier, a “worrisome” trend as repayments are often subject to variable interest rates, according to Equifax Canada.

Variable-rate mortgages overall accounted for 54 per cent of new home loans in August, versus just 26 per cent a year earlier, Bank of Canada data showed.

For investors on variable-rate mortgages “an increase in rates is going to eat into the cash flow,” which may already be falling short of expenses, said John Pasalis, president of brokerage and research firm Realosophy Realty. “We could see some investors start to offload properties,” if they face a cash squeeze, he added.

A moderate pull-back may not be a bad thing, given the tight conditions in major Canadian cities, he said.

“This time next year, the hope is that we start moving toward a more balanced market, where there’s more inventory, and demand from investors hopefully declines,” he said.

Great article, gives you an idea of housing trends in Canada, they remain strong but there are worrisome signs.

Apart from David Dodge, who I absolutely love, this passage is critical in the article:

To be sure, few anticipate a broad market crash, as a shortage of inventories and a renewed immigration push are expected to keep a floor under prices, mortgage broker Ron Butler said. A stress test, which ensures borrowers can make payments at a rate of at least 5.25 per cent he added.

There's an inventory shortage of homes keeping supply tight and demand remains fairly robust.

And therein lies the real problem, there's a serious lack of housing supply in Canada and until politicians cut the regulatory tape and address it, housing will not crash.

Cool off? Sure but rates are not going to soar, the 10-year US Treasury yield keeps declining, signalling trouble ahead.

What does this mean for M3 and non-bank mortgage brokers? Maybe nothing but if housing does tumble, it will affect everyone, including them.

Just something to keep in mind.

Below, competition is fierce for real estate in the Greater Toronto Area and Vancouver. Prices are still out of reach for a lot of first-time homebuyers and are starting to go up again in some segments, so there’s a lot to think about before jumping into the market. 

Yahoo Finance has been getting monthly updates from the ground floor from Realosophy Realty’s John Pasalis and Oakwyn Realty’s Steve Saretsky, who help make sense of it all, with advice for anyone buying or selling a home.

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