Mortgage investment corporations (MICs) – lenders that brokers are increasingly turning to – aren’t cause for major concern, according to the deputy governor of the Bank of Canada, but his institution is keeping a close eye on them.
"In Canada, the mortgage investment corporations, one would consider as part of the shadow banking sector but not as tightly regulated as banks,” Lawrence Schembri said this week in response to a question. “Part of the shadow banking recommendations are looking at ways to address the vulnerabilities these corporations might pose (but) at this point in time we don't see a large vulnerability but we are monitoring those corporations quite closely."
MICs allow investors to put money into a fund that is used to provide mortgages for those who may not qualify under stricter, more traditional lending guidelines. However, unlike similar investments – such as syndicate mortgages – a MIC manager controls where those funds are placed.
While the MIC regulations have evolved over the years, their general purpose -- outlined by Ron Basford, former Minister of State, in an address in the 1970s -- has remained the same.
“Backed by expert management service and the security of a diversified portfolio, mortgage investment companies will be able to provide opportunities for the smaller investor to participate in mortgage and real estate investments on much the same lines as mutual funds, and in this way attract new savings into residential mortgages and real estate investments.”
And while Schembri admits that the Bank of Canada is closely monitoring MICs, he is still confident that Canada has handled them in a safer manner than in U.S.
“We see this as a potential vulnerability but for the most part it's not as serious as what we've seen in the United States.”