How lenders are sidestepping Canada’s mortgage rules with ‘bundles’ of debt
TORONTO — Canada’s subprime mortgage providers are increasingly teaming up with unregulated rivals to sidestep rules designed to clamp down on risky lending.
The result of these partnerships are so-called “bundled” loans, which pair a primary mortgage with a second loan from unregulated groups called Mortgage Investment Corporations (MICs).
The arrangements have proliferated, mortgage brokers told Reuters, as Canadian regulators have tightened lending standards to shield borrowers in case a decade-long housing boom goes bust.
The practice has grown fast because it allows borrowers to make down payments of just 10 per cent, dodging federal rules that require either 20 or 35 per cent down on mortgages not backed by government insurance, according to industry experts. Packaging two loans together allows the regulated lender to skirt those rules.