Shadow lenders gaining ground but is it a bad thing?
While the low interest rates will be good news for many homebuyers for those that are not able to obtain a mortgage through traditional lenders the ‘shadow’ banking sector is an increasingly popular choice. Last year the Bank of Canada warned that unregulated lenders are a risk due to the lack of regulation and the high rates of interest they charge, sometimes as high as 20 per cent. However not everyone agrees that the non-bank lenders pose a problem; Jim Murphy, chief executive officer of the Canadian Association of Accredited Mortgage Professionals told Bloomberg that they play an important role in the market and that some of the lenders are very good at what they do. Meanwhile CIBC economist Benjamin Tal says that with home loan from the shadow lenders growing by 25 per cent a year there may need to be more involvement from the regulators to mitigate the risk.