“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."
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