How a canadian fin tech is reducing risk and increasing investor returns
On its road to becoming a household name, Cannect is making a measurable impact on the Canadian mortgage investment landscape.
The Toronto- based company is disrupting the relationship between borrowers and investors by removing third party intermediaries such as brokers. In doing so, costs for non- qualified borrowers are reduced, while risk- weighted returns for investors are increased.
“We provide the investor and borrower something they simply can’t get anywhere else – a direct real estate lending marketplace and motivational alignment between both parties to the transaction,” says Marcus Tzaferis, founder and CEO.
Changes in the Canadian mortgage environment, often from governments, have made it increasingly difficult for otherwise qualified borrowers to meet some of the new criteria – whether related to income requirements, or a change in personal situation.
“Solid borrowers are finding they can’t get a fair deal,” Tzaferis says. “We provide a short- term, affordable bridge that sets clients on a path to improve their overall financial position. Seventy per cent of our borrowers refinance into lower cost mortgages.”
An innovative online acquisition channel makes it easy for potential borrowers to quickly learn if they qualify for a mortgage loan, and at what rate. Cannect’s proprietary backend technology links to hundreds of data sources and gives Cannect and the client a deeper understanding of the client’s property and financing abilities, in seconds.
“Our technology advantage is about bringing transparency to the transaction and being more effective at pricing and closing loans than our competition. We are able to price a loan for our clients online in seconds, in full automation, while the other guy is still collecting paperwork and requesting appraisals. All of this translates into better terms for the borrower,” Tzaferis says.
For investors, Cannect lends at a conservative loan- to- value ratio of 50 to 70 per cent, and only when they can see a credible six to 12-month exit strategy for the borrower. Loans are made using conservative appraisals. Those secured against rural, seasonal or special- purpose properties are avoided. To date, Cannect has not lost a dollar of investor capital, notes Tzaferis.
Investors also have direct access to Cannect’s web portal, which provides detailed, real- time information about properties held in the portfolio, selection criteria, appraisals, exit strategies, and returns.
“At Cannect we value transparency. We select properties for our fund based on strict risk criteria, and communicate directly with borrowers and investors. We understand that our partners are both the borrower and the investor. For this to work well, everyone has to benefit,” Tzaferis says. He also points out all of Cannect’s employees are salaried employees, and everyone who works at Cannect has invested in its mortgage fund.
Since it started lending in 2014, the Cannect Mortgage Investment Corporation has generated a return of over eight per cent annually.
Along with that investment growth, Tzaferis has seen how changes in personal circumstance shift in rewarding ways.
“Wehave found a nice niche that has created elegance in the borrower- investor relationship,” he says. “One that has seen many of our borrowers become investors as their circumstances improve from doing business with us.”
Everyone wins when the motivations of the investor and borrower are aligned to repay investor capital and reward long- term clients with continued low rates.