October 5, 2016
A Look at Mortgage Investment Corporations
One way to organize Canadian mortgage lenders is by the level of regulatory oversight they receive. Understood this way, we can divide them into three broad groups: regulated lenders, quasi-regulated lenders and unregulated lenders.
Figure 1: Mortgage Lenders in Canada
The diagram shows that mortgage lenders can be divided in to three broad groups, regulated lenders, quasi-regulated lenders and unregulated lenders
- Regulated lenders include federally-regulated and provincially-regulated lenders
- Quasi-regulated lenders include Mortgage Finance Corporations
- Unregulated lenders include Mortgage Investment Corporations and other lenders
Mortgage Investment Corporations
Mortgage Investment Corporations (MICs) are unregulated, meaning that the residential mortgages they provide are not subject to the lending rules set by federal or provincial governments. Consequently, MIC mortgages are not insured by CMHC or by any other mortgage insurer. Moreover, their mortgages do not qualify for CMHC’s NHA Mortgage-Backed Securities or Canada Mortgage Bond securitization programs.
In 1973 the federal government introduced laws enabling the creation of MICs. The main goals were:
- to increase the “flow of mortgage funds”, and
- to provide a channel for small investors to participate in the residential and real estate markets.
MICs Account for a Growing but Small Share of the Mortgage Market
Some observers have expressed concerns that unregulated lenders pose a potential risk to the financial system. Although our understanding is limited by a lack of data, the evidence suggests that MICs play a relatively small role in the residential mortgage market.
Today, there are an estimated 200 to 300 MICs in Canada. As a class of lenders, they have seen significant growth in recent years, with at least 36 MICs formed since 2007. However, in 2015 the estimated value of MIC mortgage credit outstanding was less than 1% of total mortgage credit outstanding. This suggests that despite robust growth in the number of MICs, the potential for instability in the MIC segment of the market to spread to the broader housing finance system is limited.
Our Research Insight provides more detail on MICs, including how they manage risk. It links to a research report that gives a more in-depth look at these types of lenders.
Read the Research Insight — Risk Profile of Mortgage Investment Corporations