Brokers love liberal underwriting rules, but that makes for a possible conflict of interest if those mortgage professionals then take on the role of gatekeeper at a MIC, warns one mortgage expert.
“Brokers make money when mortgages are funded,” says Anisa Lancione, vice-president of mortgage development with Magenta Investment. “Malleable and liberal underwriting standards and practices facilitate mortgage funding thus creating a clear conflict of interest if broker owners control underwriting and clear and significant potential for breaching management’s fiduciary responsibility to shareholders.”
Lancione is one of a panel of speakers at the upcoming Mortgage Summit this Thursday at the Toronto Convention Centre, who will be explaining to brokers how to form an in-house MIC to better provide their clients with private lending through private investment.
But there are minefields to beware of, she cautions.
“The fundamental flaw in this business model is the clear and potentially disastrous conflict of interest between underwriting and business development/mortgage origination,” Lancione told MortgageBrokerNews.ca. “This is why all lenders including larger independently managed MICs ensure underwriting integrity by segregating the underwriting function.”
Co-panelist Christ Cheng, director of Gingko Mortgage Investment Corporation, sees that MICs are becoming a more popular solution for alternative financing and brokers need every advantage to get the deal done.
“There is an increasing awareness of alternative financing solutions out there,” says Cheng, “and with traditional lenders not approving loans like they used to, a properly packaged MIC can benefit brokers and clients as well.”
Cheng feels brokers will benefit from the collective expertise on the panel.
“We can show brokers how to package these deals,” says Cheng. “Most are not aware or understand how MICs work – we can show how MICs could be a possible solution given the new government B20 rules making it tougher to approve a loan.”
Barry Bernhardt, a counsel with McLeod Law LLP and another panelist at the mortgage summit, will be discussing the legal aspects of what a MIC is; what a MIC and do or be and not do or be under the Income Tax Act; and what the articles of a MIC should and shouldn’t contain.