There has never been a time in history when MICs (mortgage investment corporations) have been quite as popular as they are today. With an MIC an investor pools their money in with several other investors’ cash and that pool of money is used to loan mortgages. The criteria for those mortgages is often the same as with private lending – borrowers have poor credit, little down payment, or for whatever reasons can’t get a loan with a traditional financial institution. But there’s one major difference with MICs. They come with many risks that private investing doesn’t hold, and one of them is the fact that they are a long term investment.
With a mortgage investment corporation, the average length of time for the investment is usually three years, and often even longer than that. If you want to see a real return before then, you’re out of luck – and even more so if you want your principle returned to you before that time. Because you’re pooling your money with other investors, and they’re relying on that cash to see the mortgage through to its completion, you can’t pull out just because you’re not seeing the returns on that mortgage or mortgages.
It’s also because you’re pooling money that you can’t sell in case of default (and the number of defaults alone is more with MICs than it is private mortgages,) you can’t even sell. Remember that as an investor you will only have claim to a portion of that mortgage, not the entire thing. So if a borrower neglects to pay back their mortgage, there’s very little to do except take the loss.
Private mortgage investing is so much better, and so much safer, because you choose the length of the loan’s life, which is typically quite short anyways; and you also end up with a house in case the borrower defaults. Don’t need a house? That’s okay, you can still sell it and move on with your life and other investments. You don’t have to simply let your portfolio take the hit.
When choosing to invest in mortgages, there are plenty of ways you can do it. But while MICs have grown in popularity and certainly gotten their fair share of press lately, there’s a better way to do it. That way has been the unsung hero of mortgages for decades now, and it’s the path of directly investing into one (or two) private mortgages.