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Perrotta acts as a matchmaker between individuals who have money to lend – and who are seeking higher rates of return than can be had in stocks or bonds – and borrowers who are willing to pay a higher mortgage rate to get into the market.

He also invests his own money, lending between $25,000 and $250,000 each to “five or six” borrowers a year who offer a good balance between risk and return.

“It’s not for the faint of heart, and you need to understand the dynamics of real estate,” Perrotta said.

One private lender, who asked not to be named because she is close to the real estate market and fears hurting her business, took out a $400,000 mortgage on her paid-off home at 2.49 per cent and then gave that money to a broker that lent it to a borrower at a higher rate, for a fee.

“Who the hell is going to give me 9 per cent return?” said the lender, who said she has recourse to the borrower’s assets if he defaults.

CIBC senior economist Benjamin Tal said the shadow lending market represents about 4 to 5 per cent of Canada’s overall mortgage market.

“This is something that is growing very fast, because many borrowers are not having access to banks because the banks are highly regulated,” said Tal.

In Ontario, Canada’s most populous province, private lending accounts for about 4 percent of new mortgage originations, or $1.1 billion (US$878.8 million), or 2 per cent, of total mortgage lending by dollar value, according to Teranet.

While that’s a fraction of the sub-prime lending that got the U.S. housing market into trouble seven years ago, analysts are concerned that the market is growing rapidly and may be concentrated in hot housing markets such as Toronto and Vancouver where a sudden downturn could take hold.