Canada's Condominium Magazine
For several years now, well before the latest federal government moves to restrict Canadians’ access to residential mortgages, observers, including the International Monetary Fund, have worried that cracking down on Canada Mortgage and Housing Corporation insured mortgages would simply push Canadians into the uninsured mortgage market. While uninsured mortgages are perfectly legal—a buyer must have more than 20 per cent down payment to qualify for one, putting that buyer in a relatively secure financial position compared to a buyer with just 5 or 10 per cent—there are risks.
The risks pertain to the financial system as a whole, since the government would still be at least partially responsible for covering a default, and they pertain to the borrower who takes on the debt. Buying a home with a price of more than $1 million without mortgage insurance is seen as a worrisome development for buyers and mortgage originators alike.
Now a clearer picture of how Ottawa’s latest mortgage regulations are affecting the mortgage industry in Canada is beginning to emerge, and there is a good deal of gloom as many mortgage lenders anticipate a year of losses, much of them due to the new stress test requirement, which effectively doubles the mortgage interest rate a buyer must qualify for. The largest mortgage broker channel planners have reported fourth-quarter earnings, and these have been nicely summarized by Steve Huebl and Robert McLister at Canadian Mortgage Trends, from whom we borrow here.
Street Capital Bank, which began operating in February as a Schedule 1 bank, saw an increase of 12 per cent in its mortgages under administration. The bank expects to see a decline of as much as 10 per cent in its insured portfolio, however, while anticipating strong growth in its forthcoming uninsured mortgage product. As reported in Canadian Mortgage Trends, Street expects sales of the new product to rise from around $200 million this year to $950 million by 2019. CEO Ed Gettings said he expects any “softness” in the prime insured mortgage area to be offset by growing renewals and the new uninsured product.
Home Capital, meanwhile, reported earnings for 2016 down 13.8 per cent compared to 2015, with lower average balances in single-family residential mortgages and lower average rates. Fourth-quarter earnings, however, were up, with a year-end total of $9.2 billion. The company’s “accelerator” mortgage was strongly impacted by the new mortgage rules, decreasing by 33 per cent year-over-year. The company reports that it expects this product to be negatively impacted in 2017 as well.
First National increased its mortgage business by 6 per cent in the fourth quarter, though the CEO said in the earnings-reporting conference call that he expects “upheaval” in the housing markets and a slowing of the insured mortgage market by 5–10 per cent. The imposition of new federal rules on conventional mortgages will “significantly reduce” the number that are insurable. First National also reported a 22 per cent decline in new origination volumes in the Prairies.
Genworth Canada, which claims to have a 30 per cent market share, also reported a drop (6 per cent) in net premiums written over 2016. The insurer said it expected the new mortgage rules to reduce its transactional insurance market by as much as 25 per cent in 2017, depending on consumer behaviour, and add approximately 40 basis points to the average premium rate. It will cost borrowers significantly more than that in 2017; Genworth president and CEO Stuart Levings said he expects the average premium rate for 2017 will be around 14 per cent higher than in 2016.
The mortgage industry, through its main representative group Mortgage Professionals Canada, expressed its satisfaction that there were no further regulatory changes announced in last week’s federal budget that would negatively impact its members. The group has called for a freeze on any further changes until the impact of the recent changes is more fully understood.