Peter's Due Diligence Framework

A professional curriculum for evaluating a MIC

This framework is designed to make you dangerous in the best way: hard to mislead.

Use it when reviewing any Mortgage Investment Corporation, whether introduced through Diversifi or found through your own research.

It is education, not a guarantee that any checklist prevents loss.

Phase 0: Decide what job the capital must do

Before reading a single yield figure, write one paragraph:

• Time horizon
• Liquidity needs
• Income vs compounding goal
• Account location hypothesis
• Maximum allocation you would even consider
• What would make you walk away immediately

If you cannot write that paragraph, you are not ready for offering documents.

Phase 1: Mandate clarity

Ask:

1. What does this MIC say it does?
2. Residential: commercial, land, construction, bridge, in what mix?
3. Target borrower profile?
4. Geographic focus?
5. First mortgage vs subordinate mix targets?
6. Maximum LTV policy?
7. Typical term length?
8. What explicitly is out of mandate?

Green flag: mandate is specific and repeatable. Red flag: mandate is poetic, opportunistic about everything, or changes with marketing seasons.

Phase 2: People and incentives

Ask:

1. Who makes underwriting decisions?
2. How long has leadership operated through full cycles?
3. Do principals have meaningful capital alongside investors?
4. How are managers paid (management fee: origination fees, other)?
5. When can fees be waived: deferred, or prioritized over investors?
6. What conflicts exist with related entities (brokerage: servicing, development)?
7. What is the governance structure (advisory board: independent review, audit)?

Green flag: clear incentives, credible operators, explainable conflicts. Red flag: vague ownership maps, fee opacity, personality cult without process.

Phase 3: Portfolio mathematics

Request and review (as available under disclosure rules):

1. Portfolio size and number of loans
2. Average and max loan size
3. Average and max LTV
4. Lien priority mix
5. Geographic concentration
6. Property-type concentration
7. Top-10 loan concentration
8. Weighted average interest rate vs distribution target
9. Cash drag / undeployed capital levels
10. Use of leverage / bank lines (if any) and covenants

Green flag: diversification with underwriting consistency. Red flag: a few large thematic bets doing most of the economic work.

Phase 4: Credit outcomes, not just distribution history

Distribution continuity is useful information. It is incomplete information.

Ask for:

1. Arrears rates over time
2. Default definitions and history
3. Realized losses / recoveries
4. Number of enforcement files and typical timelines
5. How non-performing loans are valued and reported
6. Whether distribution continuity ever relied on unusual accounting or liquidity gymnastics

A portfolio can distribute while problems are quietly accumulating. Professionals look for both tracks: income track and credit track.

Phase 5: Liquidity engine

Map the redemption machine:

1. Notice periods
2. Redemption frequency
3. Caps / gates / suspensions
4. Historical gate events
5. Early redemption fees
6. Sources of liquidity (maturities: cash, credit facilities, new subscriptions)
7. What management does if redemption requests spike while loan demand is soft: or vice versa

Investor mismatch alert: needing GIC-like access while buying private-fund liquidity.

Phase 6: Documents and disclosure quality

Read with a pen:

1. Offering memorandum / subscription agreement / financial statements
2. Risk factors (highlight anything you do not understand)
3. Fee schedules
4. Related-party sections
5. Valuation and conflict policies
6. Redemption mechanics
7. Tax / registered-plan statements
8. Audited financials and auditor notes

If the documents are harder to get than the brochure, believe the friction.

Phase 7: Operational stress questions

Ask management or your dealer to walk through:

1. A recent loan that was declined: and why
2. A loan that became impaired: and what they did week by week
3. How appraisers are chosen and challenged
4. How exceptions to policy are approved
5. What would make them pause originating
6. How investor communications work during stress

Storytelling ability is not the test. Specificity is the test.

Phase 8: Personal suitability lock

Even a strong MIC can be wrong for you.

Confirm:

1. Exemption category / investor qualification
2. Know-your-client information is accurate
3. Allocation size vs total portfolio
4. Cash reserves outside the MIC
5. Spouse/partner alignment if shared finances
6. Tax and account mechanics confirmed
7. You can tolerate illiquidity emotionally: not only mathematically

The one-page scorecard (print this)

Score each 1-5:

• Mandate clarity
• People / incentives
• Diversification quality
• LTV / lien discipline
• Credit outcome transparency
• Liquidity realism
• Document quality
• Fee alignment
• Cycle experience
• Personal fit

Interpretation guide:

• Lots of 5s and a clean fit: proceed to deeper suitability work
• Mixed scores: slow down; ask for missing data
• Any critical 1-2 in liquidity, honesty, or personal fit: walk away

You do not need a perfect company. You need an honest one with a mandate you understand and a risk profile you can carry.

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