CEO says rising regulation and economic headwinds will have a big impact on Canada's private lending sector
Canada's Mortgage Investment Corporation (MIC) sector is heading toward significant consolidation, as tightening regulation squeezes smaller operators and a prolonged market slowdown separates well-run funds from those carrying riskier exposures.
That’s the assessment of Brad Rembold, chief executive officer of All Island Equity MIC, a British Columbia-based mortgage investment corporation, who says increased compliance demands are already making it harder for smaller MICs to remain competitive – and that the trend is unlikely to reverse.
"There will be further consolidation in the MIC space," Rembold told Canadian Mortgage Professional. "Increased regulation is making it more difficult for smaller players to compete. This isn't necessarily a bad thing, just a reality of the regulatory world we live in."
Regulation is thinning the field
Lenders in the sector are facing an increasingly complex regulatory backdrop. The Office of the Superintendent of Financial Institutions (OSFI) introduced a portfolio-level loan-to-income cap for federally regulated lenders, which took effect at the start of each institution's fiscal first quarter of 2025, limiting the share of new uninsured mortgages that exceed 4.5 times a borrower's gross annual income.
Read more: OSFI’s loan-to-income framework for federally regulated lenders
While that rule targets banks directly, another effect has been to push more borrowers into the alternative lending space, increasing both the opportunity and the scrutiny facing MICs.
Mortgage brokers have reported that the borrower rejection rate from large banks and traditional monoline mortgage lenders rose by as much as 20% following the introduction of the OSFI stress test, with clients turning to private lenders, MICs, and credit unions as a result.
As of Q1 2024, MICs were funding roughly 8.4% of new Canadian mortgages, a figure that has continued to climb as institutional lending criteria remain tight.
Read more: What’s behind the rise of MIC and private lending?
Not all MICs are equally placed
Even with the popularity of MICs and private lending on the rise, Rembold sees the current environment remaining a challenging one for plenty of entities in the sector.
The challenges facing the housing and mortgage markets as a whole are well established: a steep drop-off in purchase activity since the frenzy of the COVID-19 pandemic, coupled with higher interest rates and deep economic unease stemming from the US-Canada trade dispute and ongoing conflict in Iran.
The market’s current volatility is drawing a clear line, he said, between MICs with heavy exposure to speculative development and construction financing – which he says will continue to struggle – and well-run, residential-focused funds, which are better positioned to ride out the downturn.
"There is definitely a sense that this market slowdown may be longer and deeper than previously thought," he said. "It's going to take some time to work through the policy and economic headwinds, and real estate values will be affected along the way."
That’s not to say the sector’s influence and reach will diminish. Mortgage brokers are still much more likely to deal with MICs than they were a decade ago, or even before the pandemic – and there’s plenty that they should keep in mind about operating in the space to flourish in it, according to Rembold.
While those entities operate differently to a bank or federally regulated institution, he said brokers should approach them with the same rigour they would any other lender.
He views transparency as the most valuable tool a broker can bring to a private lending transaction, and emphasized a much-repeated but invaluable message: The more information a MIC receives upfront, the better the chances of structuring a workable deal.
“Approach your lender with a clean package and a clear exit plan, and we’re much more likely to find a solution for the client,” he said. “Pick up the phone, talk through the positives and negatives, and then submit with proper deal notes.”
Read more: Influx of new MICs and private lenders could slow in the years ahead
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