Alternative Lenders Push Back on Ottawa's Plan to Regulate Them Like Private Mortgage Funds
Alternative Lenders Push Back on Ottawa's Plan to Regulate Them Like Private Mortgage Funds
The Canadian Association of Mortgage Lenders and Administrators has released a position paper arguing that federally regulated trust companies operating in the mortgage space should face a different regulatory framework than private mortgage investment corporations. The distinction matters because OSFI is currently weighing new capital and disclosure rules that would apply uniformly to all non-bank mortgage originators, a category that currently includes everything from Schedule III trust companies to single-project syndicated deals marketed through exempt-market channels.
The concern is structural, not semantic. Trust companies originating alternative mortgages already report to OSFI, file capital adequacy disclosures quarterly, and operate under reserve requirements that private MICs do not face. They hold retail deposits. They clear through the payments system. When Equitable Bank, which sits on the trust-company side of this line, originates a mortgage to a self-employed borrower who doesn't qualify at a Big Six lender, that loan sits on a balance sheet supervised by the same federal regulator that watches TD and Scotiabank. When a private mortgage fund lends the same amount to the same borrower, it sits inside a pooled structure governed by provincial securities law, supervised by no banking regulator, and sold almost exclusively to accredited investors.
Grouping the two under identical rules is the policy equivalent of treating a Honda Accord and a Formula 1 car as the same vehicle because both have four wheels.
Why OSFI is looking at this now
Non-bank mortgage credit has grown faster than bank mortgage credit in Canada since 2018. The alternative-lender channel, which includes both federally regulated trusts and provincially regulated private funds, now accounts for roughly 7% of outstanding residential mortgage balances. That share doubled in five years. OSFI's 2023 consultation paper on non-bank financial intermediation flagged systemic risk concerns around leverage, liquidity mismatches, and the potential for correlated defaults if rates stay elevated.
The regulator is right to ask questions. But the industry's counter-argument is that trust companies are already answering most of those questions every quarter, while private funds are not. Extending identical capital buffers to both categories would constrain the trust-company side without addressing the actual blind spot, which is the provincial private-lending market where fund structures are sold with minimal public disclosure and no mark-to-market requirement.
What alternative lenders actually do
Alternative lenders underwrite mortgages that fall outside chartered-bank credit boxes. That usually means one of three things: the borrower's income is difficult to document, the property type is non-standard (a tear-down lot in Vancouver, a rural acreage with a commercial barn, a condo assignment not yet registered), or the loan-to-value ratio exceeds insured limits but the borrower has compensating factors. Loan sizes typically run $300,000 to $2 million. Rates on uninsured alternative mortgages are currently running 200 to 350 basis points above prime.
These are not subprime loans in the U.S. pre-2008 sense. Average borrower credit scores are in the 640 to 680 range. Default rates at major alternative lenders have historically tracked 50 to 100 basis points above bank portfolios. The key difference is documentation and flexibility, not credit quality.
CAMLA's position is that this book of business, when held on a supervised balance sheet, already operates under a meaningful regulatory framework. Applying private-fund-style restrictions to trust companies would either push business toward the less-supervised private channel or reduce credit availability to self-employed borrowers and new Canadians who rely on alternative underwriting. Neither outcome serves the stated policy goal, which is reducing systemic risk.
The federal government has not yet indicated whether it agrees.
Alternative Lenders Push Back on Ottawa's Plan to Regulate Them Like Private Mortgage Funds
The Canadian Association of Mortgage Lenders and Administrators has released a position paper arguing that federally regulated trust companies operating in the mortgage space should face a different regulatory framework than private mortgage investment corporations. The distinction matters because OSFI is currently weighing new capital and disclosure rules that would apply uniformly to all non-bank mortgage originators, a category that currently includes everything from Schedule III trust companies to single-project syndicated deals marketed through exempt-market channels.
The concern is structural, not semantic. Trust companies originating alternative mortgages already report to OSFI, file capital adequacy disclosures quarterly, and operate under reserve requirements that private MICs do not face. They hold retail deposits. They clear through the payments system. When Equitable Bank, which sits on the trust-company side of this line, originates a mortgage to a self-employed borrower who doesn't qualify at a Big Six lender, that loan sits on a balance sheet supervised by the same federal regulator that watches TD and Scotiabank. When a private mortgage fund lends the same amount to the same borrower, it sits inside a pooled structure governed by provincial securities law, supervised by no banking regulator, and sold almost exclusively to accredited investors.
Grouping the two under identical rules is the policy equivalent of treating a Honda Accord and a Formula 1 car as the same vehicle because both have four wheels.
Why OSFI is looking at this now
Non-bank mortgage credit has grown faster than bank mortgage credit in Canada since 2018. The alternative-lender channel, which includes both federally regulated trusts and provincially regulated private funds, now accounts for roughly 7% of outstanding residential mortgage balances. That share doubled in five years. OSFI's 2023 consultation paper on non-bank financial intermediation flagged systemic risk concerns around leverage, liquidity mismatches, and the potential for correlated defaults if rates stay elevated.
The regulator is right to ask questions. But the industry's counter-argument is that trust companies are already answering most of those questions every quarter, while private funds are not. Extending identical capital buffers to both categories would constrain the trust-company side without addressing the actual blind spot, which is the provincial private-lending market where fund structures are sold with minimal public disclosure and no mark-to-market requirement.
What alternative lenders actually do
Alternative lenders underwrite mortgages that fall outside chartered-bank credit boxes. That usually means one of three things: the borrower's income is difficult to document, the property type is non-standard (a tear-down lot in Vancouver, a rural acreage with a commercial barn, a condo assignment not yet registered), or the loan-to-value ratio exceeds insured limits but the borrower has compensating factors. Loan sizes typically run $300,000 to $2 million. Rates on uninsured alternative mortgages are currently running 200 to 350 basis points above prime.
These are not subprime loans in the U.S. pre-2008 sense. Average borrower credit scores are in the 640 to 680 range. Default rates at major alternative lenders have historically tracked 50 to 100 basis points above bank portfolios. The key difference is documentation and flexibility, not credit quality.
CAMLA's position is that this book of business, when held on a supervised balance sheet, already operates under a meaningful regulatory framework. Applying private-fund-style restrictions to trust companies would either push business toward the less-supervised private channel or reduce credit availability to self-employed borrowers and new Canadians who rely on alternative underwriting. Neither outcome serves the stated policy goal, which is reducing systemic risk.
The federal government has not yet indicated whether it agrees.
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