There are all kinds of different levels of regulation; brokers are regulated provincially, monoline lenders are effectively regulated by their insurers; i.e., Genworth
or CMHC or whoever their insurer happens to be.
“There is no question that (the unregulated private) part of the market is growing … with the introduction of B20 clients,” Lester Shore, vice president of Optimum Mortgage
, told MortgageBrokerNews.ca. “What might have been an A before, they no longer meet the requirements of the A lender, so they get pushed to the Alt-A side or the private side, which might include a provincially regulated MIC or that might include their lawyer friend who lends them his personal money.”
It isn’t known just how large the unregulated mortgage market is. CIBC economist Benjamin Tal told the Canadian Press in mid-October that it currently accounts for less than 5%. But that it is certainly growing.
"It's a baby, but this baby is growing fast," Tal told CP at the time. "I don't think it's an issue now, but it might be an issue five years from now if we continue this way."
And while much has been made about the potential growth of the market, Shore is quick to point out the difference between unregulated lenders and what the mainstream media has dubbed “shadow” lenders – which some have used as an inaccurate umbrella term for all non-bank lenders.
“MICs have to meet the requirements of the provincial legislation where they are headquartered,” Shore said. “There are certainly private lenders – you and I could pool our resources and go lend some guy for a mortgage – that I would say is the shadow industry that is completely unregulated.
“If you and I are able to convince the poor guy who needs $50,000 to fix all his windows to pay 25% then we convince him to pay 25% and that is certainly the unregulated part of the marketplace.”
CMP got in-depth with Shore about all things concerning the Alt-A space. Keep an eye out for more of that interview in the January issue.
Tightened underwriting guidelines over the past few years have increased need for private mortgages and that trend is expected to pick up steam in 2016, according to one industry veteran.