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Dear Hosper Shareholders,
As we look back on FY2024, I find myself reflecting on a year that tested every facet of our company.
2023 and 2024 weren't easy for alternative lenders. Our industry faced unprecedented challenges which resulted sharply from COVID-19 and the related monetary and fiscal responses. One could argue that government policies had been brewing an economic storm long before the onset of the pandemic. A lack of housing supply and accelerating immigration, to name two, are certain contributors to the market flux that transpired between 2020 and 2024. Add in unique factors, such as historically low interest rates, rampant government spending, work-from-home policies, and desire of families to relocate farther from cities, with hindsight, it is easy to see how this led to a rapid home price inflation (especially in suburban markets).
The surge in home values, coupled with the “pouring out” of government money, was unsustainable; a price correction was looming. Inflation hid for a while behind what were labeled as "transitory factors," but soon it became common enemy #1. The Bank of Canada responded with one of the most aggressive tightening cycles in recent decades as the policy rate increased from 0.25% in March 2022 to 4.75% by June 2023. So, why am I referencing 2020-2023 events in a 2024 Year-End Letter? Largely because of how influential these years were in shaping FY2024. We were forced to sell more properties in 2024 than in the entire period of 2017-2022 combined. Yet, we also experienced the highest interest rate environment in our company’s 8-year history. Nearly all alternative lenders faced their highest default rates in decades, but despite this, Hosper MIC delivered its highest yield ever across all 3 share classes. Hosper MIC used the surplus income from higher interest rates to deliver net growth in its Loan Loss Reserve (LLR). To put simply, Hosper MIC made more money from the incrementally higher interest rates than it lost from incrementally higher default rates, a net win for shareholders.
So, how did we do it? The higher returns—we cannot take direct credit for; a rising interest rate environment lifted all boats, and allowed us to charge more to our borrowers, passing the profits onto you. However, shielding Hosper MIC and preventing defaults from turning into real losses was our most significant accomplishment in 2024. I directly attribute this to what we call our Paragon Process—a six-wall barrier designed to protect Hosper MIC and its shareholders from risk of loss by combining proprietary strategies and strong industry partners. The six (6) walls of defence include:
- Underwriting policies, namely strong Loan To Value (LTV) buffers,
- Legal Due Diligence from the experts at Richardson Law,
- Loan Servicing team, who have successfully exited over 6,000 mortgages since 2017,
- Property Rehabilitation strategies by Casafix Renovations,
- Property Sale with the help of HomeHyve Realty; and, if all else fails,
- Loan Loss Reserve, which absorbs loss and is funded from a portion of excess profits.
Despite everything the market threw at us, Hosper MIC grew larger, stronger, safer, delivering record returns in the meantime. Any MIC can succeed when interest rates are low, and property values climb; FY2024 allowed Hosper MIC to prove it is built to thrive in any market. This is a testament to the collective strength of my team, our strategies, and the trust you have placed in us. 2025 will not be shy of its own challenges (lower interest rate environment, increasing unemployment rates, and threat of recession predicted for 2025), but Hosper MIC and the team behind it have proven to be equipped with the necessary skills to react to whatever challenges we face in the market, so your investment can remain passive, predictable, and ever growing.
You chose the right MIC, and together, we showed that success is possible with determination—even in the hardest of times.
Happy New Year,
James Grantis, Co-Founder
Hosper Mortgage Investment Corporation
