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Real estate transactions: CMHC focusing on shadow lenders

The Canada Mortgage and Housing Corporation (CMHC) is looking for more information on home loans from shadow lenders or private mortgage lenders. Many purchasers in Canada are resorting to unconventional means to secure mortgages in their real estate transactions. The increased use of these types of lenders hasn't been consistently tracked and CMHC is concerned these loans could cause financial vulnerability.

A CMHC spokesperson said the organization has a responsibility to separate sound shadow lenders from possible unscrupulous ones that could fail leaving consumers unprotected. Mortgage lending restrictions were put into place recently by governments to try to reign in escalating home prices. The move pushed purchasers who didn't qualify for CMHC-insured mortgages to find them at places federal regulators don't track.

Insured mortgages in the two most expensive housing markets -- Toronto and Vancouver -- are declining. In 2010 in Toronto, insured loans made up 27 per cent of the market, while that figure was only 16 per cent in 2016. Low-ratio mortgages -- when purchasers have at least a 20 per cent down payment -- are becoming increasingly riskier. About 27 per cent of those who borrowed for a low-ratio mortgage last year had an income to loan ratio of more than 450 per cent, an increase from 19 per cent only three years ago.

Real estate transactions can be volatile in unpredictable markets. Both purchasers and vendors should seek out the experience of a lawyer in Canada who has dealt with real estate extensively. A lawyer will ensure that his or her client's interests are protected in any potential contractual agreements.

Source:, "CMHC targets shadow lenders as more people take out 'riskier' uninsured mortgages", Nov. 14, 2017

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