Player explains MICs to public

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Brokers are increasingly turning to MICs to fund mortgages and one leading MIC provider recently explained this lending option to the public on a major news network.

“What (the banks) really are looking for is something that really has very little default risk,” Wayne Robinson, president and CEO of Pillar Financial and W.A. Robinson Asset Management said on the Lang & O’Leary Exchange Wednesday. “There is a lot of space after that (for MICs); self-employed people, situations such as marriage breakups or anything like that or small businesspeople looking to expand their business or wanting to borrow money against their residential properties.

“It sometimes just does not fit with the very strict bank formula.”

According to the Lang & O’Leary exchange, 50 per cent of MIC investments are in residential mortgages. Still, the general public may not be aware of this lending option. Robinson’s explanation, however, certainly provided some education; especially concerning how providers establish loan-to-value ratios.

“There (are) some pretty good industry standards; there are a full group of … appraisers across Canada and those appraisers we use on all of our properties so they establish, more or less, fair market value – the best estimate they can come up with,” Robinson said. “There (are) municipal assessments which (provide) a pretty good basis and if we have any concern about the appraisal or anything we go to a … well established realtor in the area and we say, ‘if you had this property what would you do with it?’”

The Bank of Canada recently stated it is monitoring MICs but that it doesn't view them as a potential liability to the economy.

"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, deputy governonr of the Bank of Canada said in September. “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."
 
  • Mortgage Guy on 2014-03-14 11:56:44 AM

    I think the Bank of Canada should give their head a shake. Capping the re-finance market to 80% LTV forces clients to seek private financing and paying interest rates up to 19% plus high lender fee's is not hurting the economy?

    I deal with a lot of power of sales due to MIC underwriting files that shouldn't be approved so the can seize the house in 12 months and basing the value on an conservative appraisal. I think this is a license to steal from the public and force people out of their homes.

    I think MIC's and private lenders should be regulated and given guidelines so they don't become harmful and the ones that are predatory, should be fined and license revoked.

  • Ken Mahon on 2014-03-14 1:08:38 PM

    The critics of MICs sound like they don't work in the industry. MICs are generally managed by licensed mortgage brokers who are required to take education courses and [in BC ] are required to re register every 2 years. Their trust accounts are audited annually and the MICs are required to publish audited financials annually. No lender likes to have bad loans as they drag down the yield in the MIC and consume an enormous amount of time to resolve. MICs operate differently than the brokers, lenders and loan packagers who presided over the 2008 real estate melt down in the US in that MICS generally keep the loans that they fund through to maturity so they are careful to do solid underwriting so they don't end up with bad loans. Most of the MICs that we compete with in Western Canada lend in the 6 -9% range which, admittedly is higher than most bank, insurance and trust Company rates but all businesses and individuals do not qualify as bank, insurance and trust Company borrowers but they still need to borrow. In summary, MICs are a well regulated part of our financial system in Canada and they serve an important and growing segment of our financial market. In addition, the people who invest in MICs are generally people and corporations looking for a better return than the 1% currently payable by banks on savings accounts. 1% isn't much good for an RRSP if the cost of living is increasing by 2% per year. I would be more than happy to debate the importance and responsible behavior of MICs in our marketplace with any critics that care to.

  • Ron Butler on 2014-03-14 1:54:29 PM

    I take no notice of Mortgage Guy's pointless rant, painting every sort of private mortgaging with the same brush is just plain silly.

    Mr. Mahon's points are well made but to fair we need to agree all MICS are not created equal.

    I have seen several MICS in Ontario that are lending in a reckless manner, constantly soliciting new investors and new mortgagors to allow them to push hot money ahead of future defaults. Very reckless lending on substandard properties and odd specialties like nursing homes and rooming houses. I am not even going to comment on MICs lending on future land development, that ship has sailed in previous articles. Since yields on term deposits and bond funds are so low I fear even high net worth qualified investors are becoming too enthusiastic about yields from newly formed MICS with unproven histories.

    As far as regulations on MICS go I will say this: you cannot legislate: experience, prudence, honestly and good intentions towards investors. Many MICS have those good qualities ROMSPEN, Fisgard and others are among them; but all MICS are not the same.

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