Made in Canada: Mortgage Investment Corporations

A complex and changing environment

Canada’s housing market is one of fluctuating property values and increasing government regulations, including implementation of foreign buyers’ tax credit and recent changes to B-20. With interest rates on the rise and more onerous regulations in place, borrowers are seeking alternative financing solutions to obtain the capital needed to participate in purchasing, developing, or investing in residential real estate.

The heated property market experienced in Canada has motivated some investors to turn to residential mortgages and the real estate market. Through investments in Mortgage Investment Corporations (MICs), retail investors can invest into a pool of mortgages seeking above average returns.

Successfully managing the inner-workings of a MIC is no easy feat. Ensuring new investors provide capital, while constantly lining up new borrowers for the mortgage portfolio, requires a degree of finesse. Experienced managers who can efficiently manage cash flows, and understand how to navigate the intricacies of this market, have succeeded in providing high returns during a period of historically low interest rates.

As with any market, there are exceptions to the successfully managed MICs. In recent years, the market demand for real estate has resulted in a number of less experienced players gravitating towards the industry. These less experienced players should understand that the strength of the control environment becomes increasingly important in order to position themselves to absorb the impact of the risks that may arise during turbulent economic times.

MICs have existed since 1973

MICs have their place in the alternative financing ecosystem as proven by their longevity and popularity. They do not fall under the same regulations as banks, and may lend on a property’s value with as many or as few guarantees as the individual MIC manager is prepared to accept on behalf of the investor.

MICs are linked to the Canadian housing market since at least 50 percent of their holdings must be in residential real estate. The recent pace of the Canadian housing market has created a competitive environment which has forced some MICs to take on a more aggressive risk profiles which often demonstrate the following attributes:

Managing yields

Since the financial crisis of 2008, MICs have helped many Canadians borrow the necessary capital to invest develop, or purchase real estate. However, fluctuations in the real estate market such as a decline in property values or an increase in the default rate of the underlying mortgage portfolio, could see less experienced MIC managers in uncharted waters. Managers not ready for unexpected volatility may need to take measures to mitigate the risk of constrained liquidity.

Growing a sustainable portfolio

The patterns demonstrated in successfully managed MICs focus more on risk management and less on chasing higher yields. Effective risk management practices coupled with an experienced manager allow successful MICs to build a strong mortgage portfolio with higher quality assets resulting in more value for investors.

The implementation of structured due diligence to mitigate default risk and ensure adequate capital liquidity will help hedge against inevitable fluctuations in the real estate market.

Strategic investors should always evaluate the MIC’s underlying portfolio sensitivity to these fluctuations in order to optimize their investment portfolio.

Considerations for MIC due diligence


If you have questions about MICs, PwC’s specialists in alternative lending, real estate and, regulatory and policy matters are well-versed and experienced in this complex sector.

Contact us

Michael McTaggart
Partner, Corporate Advisory and Restructuring, PwC Canada
Tel: +1 416 687 8924

Greg Prince
Partner, Corporate Advisory and Restructuring Leader
Tel: +1 416 814 5752

Andrew Smee
Partner, Financial Services
Tel: +1 416 815 5128

Ryan Leopold
Partner, National Banking & Capital Markets Assurance Leader, Toronto
Tel: +1 416 869 2594