500,000 Canadians Deferred Their Mortgage Payments

Commercial & Rental DAZADA DIAMOND 25 Sep

500,000 Canadians Deferred Their Mortgage Payments

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
The mortgage payment deferrals extended by the big banks in Canada to households at the onset of the COVID-19 pandemic have elapsed. There are over 500,000 mortgages on payment deferral at the Big Six banks in the country. Payments are resuming and the level has dropped by one-fifth in the most recent quarter.In the report by Canada Mortgage and Household Corp. (CHMC), more than 75% of a million Canadian homeowners have either deferred or skipped a mortgage payment. The total amount per month is about $1 billion. CHMC’s report also reveals that more people are taking out more loans.

Significant impact on mortgages

The big lenders announced the sweeping mortgage deferral programs in March 2020 to give borrowers some breathing room. Since incomes were falling, the banks allowed households to skip some payments on their mortgages. The big wave of deferred payments indicates the significant impact of the pandemic on Canadian mortgages.

All the payment deferrals in the six banks are expiring, as tens of thousands of borrowers are starting payments again. At the end of the third quarter, the number of mortgages on payment deferral is 510,530, or 17.53%, lower from the preceding quarter. The total amount likewise dropped 15.38% to $136.27 billion from the second quarter.

Royal Bank of Canada (TSX:RY)(NYSE:RY) has the most number of accounts (138,830) on payment deferrals, while Toronto-Dominion Bank is second with 107,000 accounts. Interestingly, the Bank of Nova Scotia saw a 5.3% increase in payment deferrals or 99,000 mortgages in the third quarter. The length of the deferrals varies from one to six months.

Dream investment

It’s not surprising to learn that RBC has the most mortgages on payment deferrals. With a market capitalization of $139.3 billion, it’s the largest banking institution. For the same reason, RBC is the top investment choice of income investors and retirees’ dream investment.

RBC was founded in 1864 and started paying dividends six years later. The 150-year dividend track record is what attracts investors, because it has been paying dividends for the vast majority of its corporate existence. Likewise, it tells you that you can buy and hold the stock for decades.

When you’re investing for the long term, the choice must be a company that can weather economic downturns. Your pick should be well positioned to ride out the pandemic. According to RBC’s president and CEO Dave McKay, the bank is navigating these uncertain times on a position of strength and stability.

In Q3 fiscal 2020 (quarter ended July 31, 2020), RBC reported $3.2 billion in net income — a 2% year-on-year drop. The capital markets segment posted record earnings (+45%), while the insurance business turned in stable profits (+6%).

The push to grow its U.S. business continues after RBC hired a Merrill Lynch Wealth Management team and a UBS wirehouse advisor. For prospective investors, RBC pays a 4.41% dividend, despite the low-rate environment.

Expected declines

The big banks expect the reductions in mortgages on payment deferrals. However, the real number of distressed households should be known soon.

  • https://www.fool.ca/2020/09/18/500000-canadians-deferred-their-mortgage-payments/

Scotiabank: Millennials hopeful about buying homes despite COVID-19

Banks & Bank of Canada DAZADA DIAMOND 24 Sep

Scotiabank: Millennials hopeful about buying homes despite COVID-19

Scotiabank: Millennials hopeful about buying homes despite COVID-19Compared to other demographics, Canadian millennials are more optimistic about purchasing a home during the COVID-19 pandemic, according to a new survey by the Bank of Nova Scotia.

The 2020 Scotiabank Housing Poll found that around 18% of young Canadians in the 18-34 age range have “accelerated their plans” to buy their next homes or investment properties. However, roughly 32% of them said that they will only make their purchases once property prices drop.

Scotiabank said that these intentions are mainly driven by lower interest rates. Approximately 68% of those planning to buy will be using their savings, while 42% will be using the equity from their primary homes.

Millennials were also more optimistic (36%) about home price declines within the next 12 months, compared to 24% of those in the 35-54 age cohort and 17% of those older than 55 years old.

Additionally, better purchasing power fed into a greater appetite for renovations, with around 26% of Canadians considering major reworks in their current homes.

“The pandemic has caused many Canadians to turn their living rooms into classrooms, their dining rooms into offices, and their basements into home gyms,” said John Webster, head of real estate secured lending at Scotiabank. “This is motivating many to consider investing more in their current homes or re-evaluating their living spaces altogether.”

  • https://www.mortgagebrokernews.ca/news/scotiabank-millennials-hopeful-about-buying-homes-despite-covid19-333422.aspx?utm_source=GA&utm_medium=20200918&utm_campaign=MBNW-Newsletter-20200918&utm_content=CAB225E9-A56E-4453-BA7A-30CBD695B619&tu=CAB225E9-A56E-4453-BA7A-30CBD695B619

Partnership to help create 5,000 new affordable homes across Canada

Real Estate DAZADA DIAMOND 22 Sep

Partnership to help create 5,000 new affordable homes across Canada

TORONTO, Sept. 18, 2020 /CNW/ – Every Canadian deserves a safe and affordable place to call home. Thanks to investments made by the Government of Canada and a unique partnership with the United Church of Canada, up to 5,000 new affordable housing units will be built across the country over the next 15 years.

Today, the Honourable Ahmed Hussen, Minister of Families, Children and Social Development and the Minister Responsible for Canada Mortgage and Housing Corporation (CMHC) announced that the Affordable Housing Innovation Fund is providing the United Church of Canada’s newly formed development corporation, United Property Resource Corporation (UPRC), with a $20 million line of credit to be accessed for pre-development and pre-construction costs as the UPRC builds affordable housing across Canada. The UPRC will develop over 200 strategic sites in the United Church of Canada’s land inventory.

The announcement was held at 1598 Queen Street East in Toronto, the site of the first R-Hauz all-mass timber residential building in Toronto. The environmentally sustainable building represents UPRC’s commitment to fill the “missing middle” in housing across the country and advocate for progressive real estate models that are environmental and financially sustainable.

The Affordable Housing Innovation Fund is a $200 million initiative through the National Housing Strategy that has been instrumental in creating the next generation of housing in Canada. The goal of the Innovation Fund is to encourage new funding models and innovative building techniques in the affordable housing sector. The Innovation Fund:

  • supports the development of innovative approaches to affordable housing
  • creates inclusive and accessible communities
  • contributes to the fight against homelessness

The UPRC brings professional real estate development and management expertise to collaborate with public and private partners who want to make a difference by building lasting affordable housing for all.

Quotes

“Innovative approaches will help build more affordable housing in Canada, addressing the need we have across this country. By thinking outside-the-box, the United Church of Canada is contributing to providing more Canadians with housing that meets their needs and they can afford and the National Housing Strategy’s Innovation Fund is assisting them with some of the significant upfront costs to get started with these developments.”– The Honourable Ahmed Hussen, Minister of Families, Children and Social Development and the Minister responsible for CMHC

“UPRC represents an exciting opportunity to reimagine Canadian neighbourhoods by building diverse, affordable, places where all can live, gather and thrive. We are not just building housing we are building homes and communities for all Canadians. If these community assets were sold today the vital benefit to our neighbourhoods would be lost forever. With the assistance of the Affordable Housing Innovation Fund, our vision to develop open resilient sustainable communities can truly be realized.” – Tim Blair, CEO, United Property Resource Corporation

Quick Facts

  • Today’s announcement was held at 1598 Queen Street East, the traditional territories of the Ojibway, the Anishnabe and the Mississauga’s of the New Credit. The territory is covered by the Upper Canada Treaties
  • The UPRC commits to building a minimum of 5,000 affordable housing units – both rental and ownership – over the next 15 years
  • More than 30 projects are currently under development by the UPRC
  • A minimum of LEED Gold Certification or equivalent will be pursued for each of the UPRC’s projects, with a commitment to reduce greenhouse gasses and energy use by a minimum of 10% compared to Canada’s National Energy Code for Buildings for 2017
  • At least 10% of units in a project will meet or exceed minimum local building code requirements for accessibility. All common areas will be fully accessible
  • UPRC works alongside the largest landowner groups in Canada to unlock value in real estate that is then reinvested in social purpose. The National Trust estimates 9,000 communities of faith will close over the next decade, creating huge opportunity to repurpose assets and build sustainable communities open to all.
  • The Affordable Housing Innovation Fund is providing $200 million over 5 years for projects that showcase new funding models and innovative building techniques, lowering the costs and risks of financing affordable housing projects and helping to make the affordable housing sector more attractive for private market developers and investors.
  • The Government of Canada is currently rolling out its National Housing Strategy (NHS), an ambitious 10-year, $55 billion plan that will create 125,000 new housing units and lift 530,000 families out of housing need, as well as repair and renew more than 300,000 housing units and reduce chronic homelessness by 50 percent
  • Under the Investing in Canada plan, the Government of Canada is investing more than $180 billion over 12 years in public transit projects, green infrastructure, social infrastructure, trade and transportation routes, and Canada’s rural and northern communities.

Associated Links

  • As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers unbiased housing research and advice to all levels of Canadian government, consumers and the housing industry. For more information, visit our website or follow us on Twitter, YouTube, LinkedIn, Instagram and Facebook.
  • To find out more about the National Housing Strategy, visit www.placetocallhome.ca.

SOURCE Canada Mortgage and Housing Corporation

For further information: on this release: Jessica Eritou, Office of the Minister of Families, Children and Social Development, jessica.eritou@hrsdc-rhdcc.gc.ca; Angelina Ritacco, Media Relations, Canada Mortgage and Housing Corporation, 416-218-3320, aritacco@cmhc-schl.gc.ca; Laura Currie Ryder, United Property Resource Corporation, 416-317-9447, laura@lcrcommunications.com; Francesca MacKinnon, R-Hauz Solutions Inc., 514-265-2546, Francesca@r-hauz.ca

Related Links

www.cmhc-schl.gc.ca

  • https://www.newswire.ca/news-releases/partnership-to-help-create-5-000-new-affordable-homes-across-canada-830729734.html

Equifax Rolls Out Changes to its Mortgage Inquiry Process

Latest News & Economy DAZADA DIAMOND 21 Sep

Equifax Rolls Out Changes to its Mortgage Inquiry Process

Equifax Canada has implemented changes to its mortgage inquiry process to enhance the protection of consumer information.

The changes, which were first announced to the industry earlier this year, came into effect on September 14, including:

  • Requiring all lenders to have an identifying Member Number if they want to continue receiving files from brokers.
  • Only brokers who have signed amended contracts will be able to obtain credit files through industry connector platforms, such as Newton and Filogix.
  • Each and every inquiry will be posted with both the broker’s and lender’s name when using all industry connector platforms. Access to these files will be restricted to credentialed lenders.

“Essentially, we’ve made these changes for the primary benefit of the consumer,” Roger Mitchell, head of Financial Institutions Strategy & Innovation at Equifax Canada, told CMT. “By ensuring that all credit inquiries are posted to a consumer file, there will be a fuller and more accurate picture of who has access to consumers’ files. We feel doing this will strengthen consumer trust and provide the right level of transparency to consumers.”

Given that the changes were “fairly substantial,” Mitchell noted that Equifax worked hand-in-hand with all of the different stakeholders to ensure a smooth transition.

He added that industry feedback has been very positive. “Everyone understands the reasons why we’re doing this and the feedback and sign ups have been tremendous,” he said.

Benefits to Brokers and Lenders

While the new requirements were designed primarily to provide greater safeguarding and oversight to protect consumers, Mitchell notes there are additional benefits for industry partners.

Lenders benefit from a system that captures all consumer file activity and inquiries, which results in improved insights and analytics.

“We know that improved data accuracy leads to better credit decisions,” Mitchell said.

Brokers will similarly benefit from the access to additional data to help them better understand their client’s credit history. Equifax adds that an Enhanced Broker Credit Report is being launched to help brokers and lenders gain deeper insights into mortgage applicants and to help improve information accuracy.

Brokerages that have not yet signed their amended contracts can do so at the following address: https://www.equifax.ca/BOI/en/form

Lenders that have not yet been credentialed are asked to contact Equifax at na.account.services@equifax.com

  • https://www.canadianmortgagetrends.com/2020/09/equifax-rolls-out-changes-to-its-mortgage-inquiry-process/

Consumer confidence in housing sector showing signs of improvement

Latest News & Economy DAZADA DIAMOND 18 Sep

Consumer confidence in housing sector showing signs of improvement

Consumer confidence in housing sector showing signs of improvementAs Canada’s economy continues to recover from the financial impact of the COVID-19 pandemic, a new report showed that confidence in the housing sector has improved over the last two months.

Mortgage Professionals Canada (MPC) recently released findings from its second consumer survey of the year, which was conducted from August 7 to 24 and focused on two groups: non-homeowners who think that they might buy a home during the next three years, and mortgage holders.

According to Will Dunning, chief economist at MPC, data from the survey indicated that, in general, opinions have not become more negative during the pandemic period – mortgage holders are “actually showing reduced levels of regret about their mortgages” and homeowners “have not become more worried about their ability to weather a downturn in the housing  market.”

Read more: Five reasons Canadians have little reason to fear a housing crash

Moreover, Dunning said that there is still a “high degree of confidence” that real estate is a good long-term investment –and that mortgages are still considered “good debt.”

In other words, there is more confidence that now is a good time to buy a home.

“We’re encouraged by the new survey data, which indicated that confidence in the housing sector improved during July and August,” said Paul Taylor, president and chief executive officer of MPC. “As many Canadians become more comfortable with our new business operating environments, optimism about future economic activity appears to be buoying housing market activity and expectations for future purchases.”

Dunning said, however, that the economic environment remained volatile, making economic forecasting “impossible.”

“Since March, every month has produced enormous changes in economic indicators, including the housing market,” said Dunning. “Our second report shows that while the recovery continues, at this point it is only partial in nature. The future course for the housing market and the broader economy will of course be influenced by COVID-19, but also by changes in government programs that support consumers’ employment and incomes, and policies that affect the housing and mortgage sectors. A key take-away from this report is that we need as much discussion as possible about what issues are emerging and how policies can evolve to help Canadians make good choices about housing and mortgages.”

  • https://www.mortgagebrokernews.ca/news/consumer-confidence-in-housing-sector-showing-signs-of-improvement-333324.aspx?utm_source=GA&utm_medium=20200916&utm_campaign=MBNW-Newsletter-20200916&utm_content=CAB225E9-A56E-4453-BA7A-30CBD695B619&tu=CAB225E9-A56E-4453-BA7A-30CBD695B619

Five reasons Canadians have little reason to fear a housing crash

Real Estate DAZADA DIAMOND 17 Sep

Five reasons Canadians have little reason to fear a housing crash

Five reasons Canadians have little reason to fear a housing crashWhether they take place during a pandemic-fuelled recession or during a period of sustained economic expansion, record-shattering home sales in Canada always seem to be accompanied by the same phenomenon: talk of the country’s “inevitable” housing crash.

Questioning the logic of homebuyers who engage in wild bidding wars in the midst of historic job losses is hardly unreasonable, but saying that behaviour will trigger a catastrophic fall in home prices, like the 18 percent decline projected as a potential outcome by the Canada Mortgage and Housing Corporation in May, is a train of thought Nick Kyprianou, president of RiverRock Mortgage Investment Corporation, is encouraging Canadians to abandon.

Talk of a crash in home prices has been persistent since CMHC first floated its dire 18 percent figure, even though neither CMHC nor any other housing authority, lender or brokerage has provided any evidence or metrics that tie current market activity or the economic slide caused by COVID-19 to plummeting home prices. And yet, the spectre of an 18 percent decline persists, hanging over the market like the reaper’s scythe, just waiting to harvest the souls and credit ratings of unfortunate Canadians.

Kyprianou is another market-watcher who can’t fathom the CMHC’s projection. His theory is that, in determining its absolute, institution-destroying, worst-case scenario as part of its annual report to the Office of the Superintendent of Financial Institutions, CMHC may have concluded that its own breaking point would come if home prices shrank by 18 percent.

“I think [CMHC CEO Evan Siddall] just spouted off the worst-case scenario,” Kyprianou says. “Well, the chance of the worst-case scenario is so remote, everything has to line-up perfectly – multiple times – for it to happen.”

Using five key metrics to compare the current economic situation to that which proceeded the last true housing crash in Ontario (1989-1995), Kyprianou says today’s consumers can remain confident that home values will largely maintain their strength, even as COVID-19 continues to cast its shadow over the Canadian economy.

1. Interest rates
“Interest rates are your biggest factor,” Kyprianou says “If interest rates keep going up, that’s the biggest burden on housing because your dollar just doesn’t go as far.”

Interest rates almost doubled during Ontario’s last crash, rising from from eight to fifteen percent, putting pressure not only on buyers but the province’s builders as well. That is simply not going to happen this time around. The Bank of Canada estimated that it may not raise its key interest rate target before 2022.

2. Unemployment
There is no question that Canada’s employment situation is a worry. Unemployment was 10.2 percent in August 2020, almost double the rate seen in August 2019. But Kyprianou says there’s more to the story than just the headline.

In the early 1990s, when unemployment was hovering around 11 percent, most of the jobs being lost belonged to high earners – middle management, skilled tradespeople, factory workers – who saw their employers close up shop and move their operations to countries like Mexico during the first rocky years of the North American Free Trade Agreement.

“When these jobs are evaporating and the bulk of the unemployed are the higher income earners, that is going to have an effect on housing,” Kyprianou says, adding that most of the labour disruption caused by COVID-19 has been proven to involve low-wage earners who are predominantly renters, not prospective home buyers.

“That’s a big dynamic change,” he says. “You just can’t look at what the unemployment number is. You have to drill down through it and look at who is unemployed.”

3. Equity
Much of the concern expressed by CMHC’s Siddall over Canadian debt levels and high-ratio mortgages is the risk of borrowers being dragged underwater if falling home prices leave them in a negative equity position. Fair enough. But Kyprianou, quoting statistics provided by Canadian Mortgage Professionals, says the vast majority of Canadians have far more than five percent equity in their homes.

In its most recent Annual State of the Residential Mortgage Market in Canada report, CMP found that 88 percent of Canadian homeowners have equity ratios of 25 percent or higher. Among the 6 million homeowners with mortgages, 81 percent have equity ratios of 25 percent or more.

Kyprianou says there is also the concept of emotional equity to consider. Defaulting on a mortgage is seen as an embarrassing failure most homeowners will do all they can to avoid. He saw many of them get resourceful during the last recession – taking on boarders, getting a second job, asking their families for assistance – as a means of making their monthly mortgage payments. He expects the same level of effort from today’s borrowers.

“You gotta make it work,” he says.

4. Taxes
In the early 90s, sky-high personal and corporate tax rates were deemed responsible for driving companies and individual professionals into the waiting arms of the United States. The resulting brain drain eventually led to lower tax rates in Canada, but the damage was done.

With unemployment high and business confidence muted, it is highly unlikely that taxes will see any kind of significant spike over the near-term. Canadians are likely to be up in arms when their CERB payments are taken into account come tax time next year, and the billions in government aid used to prop up the economy for six months will eventually need to be recouped, but it’s safe to say the feds won’t threaten the nation’s economic recovery – or their polling numbers – by implementing any significant new taxes.

5. Immigration
In the 1989-1995 downturn, the problem wasn’t a lack of new Canadians, it was an inability to keep them. The brain drain days are over, but by limiting international immigration, COVID-19 has thrown a wrench into the works. With just over 100,000 permanent residents being welcomed into the country in the first six-months of 2020, Canada has little chance of hitting its immigration target of 341,000 for the year.

Immigration has been a significant driver of all things good in Canada over the past several years – population growth, innovation, economic expansion, home sales – but Kyprianou doesn’t see a fall in immigration numbers having too negative an impact on home prices, largely because immigrants don’t tend to buy properties for the first two years after arriving in Canada.

“If the pandemic affects immigration for three years, it’s not going to be a problem,” he says. “If it’s just a year, year-and-a-half, it’s not going to be a problem.”

Canada’s reputation for being a stable presence in a chaotic world has also been strengthened by the country’s handling of the pandemic (and the humiliating failure of our neighbours to the south to do the same). Once recovered from COVID-19, the country should still offer the same opportunity for new arrivals to find not only a safe environment to raise their families, but high-paying jobs in growing industries like tech and financial services.

The only sub-market where Kyprianou sees prices softening is high-rise condos. But with so many investors having purchased rapidly appreciating pre-construction properties over the past five years, even those who may be forced to sell, like unlucky Airbnb operators, are unlikely to face a loss. If the average price per square foot in Toronto, for example, falls from its current level of approximately $1,100 to $900, anyone who purchased at $500 per square foot in 2015 will still be making a hefty profit.

“It’s not like there’s going to be a bloodbath,” Kyprianou says. “They just don’t make as much money if they have to sell.”

  • https://www.mortgagebrokernews.ca/news/five-reasons-canadians-have-little-reason-to-fear-a-housing-crash-333157.aspx

Bank of Canada’s 4.79% benchmark rate expected to increase home buyers’ purchasing power

Banks & Bank of Canada DAZADA DIAMOND 16 Sep

Bank of Canada’s 4.79% benchmark rate expected to increase home buyers’ purchasing power

Bank of CanadaWith the five-year conventional mortgage rate at a historic low of 4.79%, experts are saying that now might be the right time to secure a mortgage.

In August, the Bank of Canada (BoC) dropped its five-year conventional mortgage rate to 4.79%, following cuts from the country’s six biggest banks. It was the second time in three months that the central bank cut the benchmark rate.

And with the benchmark qualifying rate at a record low, experts are saying that it may be a good time for potential home buyers to enter the market.

Read more: BoC overnight rate remains at effective lower bound of 0.25%

“Over the last few years, rule changes have made it harder for Canadians to qualify, so the recent reductions in the benchmark qualifying rate is welcome news for first-time home buyers hoping to enter the housing market,” said James Laird, co-founder of Ratehub.ca and president of CanWise Financial. “The change to the benchmark qualifying rate will increase home buyers’ affordability by 1.5%.”

Meanwhile, Paul Taylor, president and chief executive officer of Mortgage Professionals Canada, told the Globe and Mail that the new rate will l make qualifying easier, or permit some people to borrow fractionally more.”

“In addition to the lower rates, the lower stress test added about one percent to a buyer’s maximum mortgage amount, depending on the down payment,” said Mark Herman of Mortgage Alliance. “The new rules that have come in and the tighter underwriting guidelines the banks are using have taken away much more than that for the average buyer.”

  • https://www.mortgagebrokernews.ca/news/bank-of-canadas-4-79-benchmark-rate-expected-to-increase-home-buyers-purchasing-power-333291.aspx

Big Banks Still Dominate Mortgage Market Share, Says CMHC

Banks & Bank of Canada DAZADA DIAMOND 15 Sep

Big Banks Still Dominate Mortgage Market Share, Says CMHC

Big banks originate nearly 7 out of 10 (67%) of new Canadian mortgages, although their market share has fallen slightly from last year, according to CMHC.

Of total mortgages outstanding, the big banks hold 72% of those loans, down from 75% in 2018, according to the latest Residential Mortgage Industry Report released by the Canada Mortgage and Housing Corporation (CMHC).

Their average loan in 2019 was $220,650, with interest rates ranging from 3.10% to 5.20% and a delinquency rate of 0.24%.

Mortgage Finance Companies (MFCs) dominate the insured mortgage space after the larger lenders, holding 20% of the market, followed by 12% for credit unions.

Of total mortgages outstanding, MFCs have 9% of the market share, with average mortgage loans of $247,828 and a delinquency rate equal to that of the big banks at 0.24%.

Credit unions hold 14% of outstanding mortgages, with smaller loan amounts averaging $156,817 and a lower delinquency rate at 0.17%.

Private lenders and mortgage investment corporations (MICs) hold just 1% market share and reported average interest rates of between 7% and 15% with an average delinquency rate of 1.73%.

$1 Billion in Monthly Mortgage Deferrals

Canadian government COVID-19 initiativesCMHC also reported that Canadians have deferred a total of $1 billion per month since the height of the pandemic.

“This significantly reduces the influx of payments toward outstanding mortgage debt and is expected to contribute to increasing the total mortgage debt in the second and third quarters of 2020,” CMHC noted.

The calculation was made based on an average monthly payment of $1,333.

“…we also expect fewer mortgage borrowers will be making additional mortgage payments this year in order to accelerate their mortgage repayments (through lump-sum payments or accelerated repayments),” CMHC added.

About 20% of borrowers said they plan on making prepayments to their mortgage this year, based on data from the Financial Industry Research Monitor (FIRM). Last year, two thirds of mortgage borrowers said they planned to make extra payments towards their mortgage in 2020.

Additional Data from CMHC

  • About 760,000 borrowers from Canada’s chartered banks have deferred their mortgage payments.
  • 63% of all mortgages offered by the big banks were for uninsured loans.
  • “Renewals with the same lender increased by 11% relative to the previous year and accounted for more than half of all extended loans,” CMHC noted.
  • Up to 20% of borrowers said they “might be looking at switching lending institutions depending on whether their lender approved mortgage relief measures and how they dealt with accommodations during the crisis,” according to FIRM data.

  • https://www.canadianmortgagetrends.com/2020/09/big-banks-still-dominate-mortgage-market-share-says-cmhc/

Q3 2020 Bank Earnings – An Update on Big Bank Deferrals

Banks & Bank of Canada DAZADA DIAMOND 14 Sep

Q3 2020 Bank Earnings – An Update on Big Bank Deferrals

The country’s Big Six banks provided an update on the state of their mortgage deferrals, with each reporting varying results in terms of getting those borrowers back to making regular payments.

Both RBC and National Bank of Canada saw their mortgages under deferral drop substantially from Q2 to Q3. RBC said 12% of its loan portfolio remains in deferral (vs. 18% in Q2), while NBC’s deferrals are down to 5% of its loan portfolio (vs. 11.9% in Q2).

Others are seeing a slower transition. TD said its mortgage deferrals fell to 12% of the portfolio from 14% in the previous quarter, while deferrals actually rose at Scotiabank from 17% of its portfolio in Q2 to 18% in Q3.

All of the big banks, however, expressed confidence in the ability of the far majority of those mortgagors to get back on schedule, with several offering insight into the financial strength of some of those clients.

“If we look at the LTVs and the FICO scores on the uninsured book, I think that’s the place we take a lot of comfort in, in terms of the underlying risk,” said Neil McLaughlin, Group Head, Personal and Commercial Banking at RBC. “LTVs in the mid-50%…and then average FICO at 758. I mean, these are strong credit clients with a lot of absorption capability.”

As we do every quarter, we’ve picked through the Big Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage notables right here. Key tidbits are highlighted in blue.

QUICK LINKS:

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Bank of MontrealBMO

Q3 net income: $1.23 million (-21% Y/Y)
Earnings per share: $1.85

  • BMO’s residential mortgage portfolio rose to $115.6 billion, up from $110.5 billion a year earlier.
  • The HELOC portfolio—62% of which is amortizing—rose to $35 billion from $33 billion a year ago.
  • Mortgage growth through proprietary channels, including amortizing HELOCs, was up 7% year-over-year.
  • 40% of BMO’s residential mortgage portfolio is insured, down from 43% a year ago.
  • The loan-to-value on the uninsured portfolio is 54%, down from 55% a year ago.
  • 80% of the portfolio has an effective remaining amortization of 25 years or less, up from 71% a year ago.
  • Net interest margin (NIM) in the quarter was 2.54%, down from 2.66% in Q3 2019.

Deferrals & Provisions

  • The average credit score for clients with deferred balances is 745, and the average loan-to-value is 59%, BMO reported.
  • Total provisions for credit losses in Q3 was to $1.05 billion, down from $1.12 billion in Q2 but up from $306 million in Q3 2019.

Source: BMO Q3 Investor Presentation

Conference Call

  • “We have been pleased with our credit experience so far during this crisis, with credit migration, payment deferral expiry and impaired loan loss provisions well within expectations and utilization rates back to normal levels,” said Pat Cronin, Chief Risk Officer. “With that said, we do expect to see our impaired loan loss rate rise in the coming quarters and would guide to a rate in the 40s in terms of basis points for the next few quarters.”
  • “We would expect the bulk of the consumer deferrals to roll off in Q4. We wouldn’t anticipate giving out additional deferrals there,” Cronin added. “We think we will move much more just simply to a case by case with our consumer customers after that.”
  • “Overall, we have seen good performance on deferrals that have matured reflecting the quality of the clients and the collateral,” Cronin said.

Source: BMO Conference Call

CIBCCIBC

Q3 net income: $1.17 billion (-16% Y/Y)
Earnings per share: $2.55

  • CIBC’s residential mortgage portfolio rose to $207 billion in Q3, up from $201 billion in Q3 2019.
  • Of the portfolio, $27 billion is from the Greater Vancouver Area (unchanged a year earlier), and $65 billion is from the Greater Toronto Area (up from $63 billion a year ago).
  • Of the uninsured portfolio, the LTV was 52%, unchanged from a year ago.
  • The bank reported $11 billion in originations in the quarter, up from $9 billion last quarter.
  • The bank’s HELOC portfolio ended the quarter at $19.5 billion, down from $21.6 billion a year ago.
  • Net interest margin in Q3 was 238 bps, down from 254 bps in Q3 2019.

Deferrals & Provisions

  • CIBC reported $33.3 billion worth of mortgage balances still in deferral in Q3, down slightly from $35.5 billion reported in Q2.
  • Of the bank’s uninsured residential mortgage portfolio, 0.36% are in arrears by 90+ days, up from 0.32% in Q2 and 0.27% in Q3 2019.
    • CIBC says this is “due to the stopping of collection efforts during the peak COVID period. Delinquencies are expected to trend lower in Q4/20.“
    • “We experienced a small increase in gross impaired balances,” said Shawn Beber, Chief Risk Officer. “However, given the moderate average loan-to-value ratio of this portfolio, we do not expect this increase to translate into material losses.“
  • Provisions for credit losses were $525 million for the period ended July 31, up from $291 million a year ago, but down from $1.41 billion in the second quarter.
  • “Provisions on impaired loans were lower this quarter than the second quarter,” he added. “However, we do expect to see impaired provisions trend higher over time, as relief programs come to an end and flow write-offs and insolvencies increase.“
  • “The overall Canadian consumer late-stage delinquency rate was up this quarter, with a higher rate in residential mortgages and a lower rate in credit cards and personal lending,” Beber added.

Source: CIBC Q3 Investor Presentation

Conference Call

  • “We drove year-over-year growth in mortgage balances of 3% on a spot basis as the real estate market started to recover in June and July,” said CEO Victor Dodig. “And while our performance is not yet where we want it to be, our recent growth has returned closer to market levels, supported by additions to our more mobile advisor team and a streamlined application process. We continue to see very high levels of digital engagement with digital banking sessions and transactions up approximately 25% from pre-pandemic levels.”

Source: CIBC Conference Call

NBC

National Bank of Canada

Q3 net income: $602 million (-1% Y/Y)
Earnings per share: $1.66 a share

  • The bank’s residential mortgage and HELOC portfolio rose to $85.6 billion in Q3, up from $78.7 billion a year ago.
  • The bank’s residential mortgage portfolio is 38% insured (70% in Alberta), down from 40% a year ago.
  • The average LTV on the uninsured mortgage portfolio was 59%, while the average LTV on the HELOC portfolio was 56%.
  • Quebec represented 55% of the mortgage book (up from 54% from a year ago), while Ontario made up 26% (unchanged) and Alberta 8% (unchanged).
  • Net interest margin was 2.15% in Q3, down from 2.23% a year earlier.

Deferrals & Provisions

  • NBC reported 14,405 real estate secured loans (5% of loan balances) still under deferral as of July 31, down from 36,682 loans (11.9%) as of April 30.
  • The bank said it handled 10k payment deferral requests in Q3 vs. 75k in Q2.
  • About 99% of the bank’s deferrals will expire by Oct. 31.
  • Insured mortgages represent nearly half of all mortgages under deferral.
  • 98% of expired residential mortgage deferrals have restarted regular payments.
  • Since Q1, total allowances for credit losses has increased from $769 million to $1.3 billion.
  • Of the bank’s uninsured residential mortgage portfolio, 0.34% are in arrears by 90+ days, up from 0.21% in Q3 2019.

Source: National Bank Q3 Investor Presentation

Conference Call

  • “Since Q2, the value of retail loans on the deferrals is down 60%,” said CEO Louis Vachon. “In addition, the vast majority of clients are resuming payments as scheduled as they exit deferral programs.“
  • “On mortgages…we offered up to six months [payment deferral], but we approached it to work proactively with our customers for a first three-month period, and then proceed with another three months at their request based on each individual need for hardship,” said Lucie Blanchet, VP Personal Banking and Marketing.
  • “So, there were a couple of reasons why we did that. First, we wanted to be proactive and work with our customers quicker than in six months to better understand their situation and find proactive solution,” she said. “But we also understood that there was a cost for them to defer their payments. And we wanted to limit that impact as much as possible. And obviously, it gave us some insights on the restraints before six months.“

Source: NBC Conference Call

Royal Bank of CanadaRBC

Q3 net income: $3.2 billion (-1.8% Y/Y)
Earnings per share: $2.20

  • RBC’s residential mortgage portfolio rose this quarter to $283 billion, up from $276 billion a year ago.
  • Mortgage volume was up 10% year-over-year.
  • The bank’s HELOC portfolio fell to $37 billion from $39.4 billion a year ago.
  • 66% of its mortgages are uninsured, up from 64% a year ago. The average LTV on the uninsured portion is 51%, down from 52% a year ago.
  • 90+ day delinquencies in the overall residential mortgage portfolio rose to 0.18% from 0.17% a year ago.
  • The bank’s uninsured mortgage portfolio has an average FICO score of greater than 800, up from 797 in Q3 2019.
  • Net interest margin was 2.58%, down from 2.80% in Q3 2019 “due to lower interest rates and the impact of competitive pricing pressures.”

Mortgage Deferrals & Provisions

  • RBC approved about 350,000 Canadians as part of its deferral program.
  • As of Q3, $55 billion worth of loans were still being deferred (12% of total Canadian banking loans).
  • RBC said 83% of its active deferral balances will expire in Q4. The average remaining term on active deferrals is 2.5 months.
  • To date, $23 billion worth of loan deferrals have expired, and 80% have resumed regular payments, while 19% have extended their deferrals by up to 6 months. The remaining 1% became delinquent.
  • Total allowances for credit losses grew to $6.1 billion in Q3, up from $5.9 billion in Q2.

Source: RBC Q3 Investor Presentation

Conference Call

  • “Our e-signature solution is helping our mortgage specialists in the field and our clients are benefiting from investments we made in digital tools to allow for self serve renewals,” said CEO Dave McKay. “While it’s too early to comment on the sustainability of these trends, we will continue to help Canadian homeowners while supporting balanced growth in the market.”
  • “Many clients took deferrals as a precaution, and we expect most to resume payments when deferrals expire,” McKay added.
  • “We’re reaching out to these clients,” said Neil McLaughlin, Group Head, Personal and Commercial Banking. “I think we’re quite encouraged by the feedback we’re getting from clients and their ability to resume these payments.“
  • In terms of geographic breakdown of RBC’s mortgage deferrals, Graeme Hepworth, Chief Risk Officer, said this: “…the highest deferral rates would be in Alberta, consistent with… the kind of dual impact that Alberta is facing, both with the pandemic and the impact on the oil and gas environment. GTA would be next highest there. And again, that’s a reflection of two things, I would say. One is kind of a lot of the service economy that comes out of Toronto, but also kind of the higher level of home prices. And then, on the lower side, you’d see Quebec and some of the other parts of Ontario outside of the GTA.”
  • Commenting on the makeup of its deferral clients, McLaughlin said this: “if we look at the LTVs and the FICO scores on the uninsured book, I think that’s the place we take a lot of comfort in, in terms of the underlying risk. LTVs in the sort of the mid-50%…and then average FICO at 758. I mean, these are strong credit clients with a lot of absorption capability.“

Source: RBC Conference Call

ScotiabankScotiabank

Q3 net income: $1.3 billion (-34% Y/Y)
Earnings per share: $1.04

  • The total portfolio of residential retail mortgages rose to $221 billion in Q3, up 6% from $207 billion in Q3 2019.
  • Net interest margin fell to 2.26%, down 18 bps from Q3 2019.

Deferrals & Provisions

  • Gross impaired loans were up 34 bps as of Q3 vs. 31 bps in Q3 2019. Mortgage loans that were 90+ days past due rose to 0.21%, up from 0.19% a year ago.
  • Scotia reported that 41.5% of its mortgage deferrals expired in July, with another 23.3% coming up for expiry this month. Another 11.9% are set to expire in October.
  • Scotia had 137,000 active deferral requests as of Q3, representing $39 billion of its mortgage portfolio.

Source: Scotiabank Q3 Investor Presentation

Conference Call

  • Of the mortgage holders still in deferral, their average credit score is 750 and higher, “close to those that are not in deferral,” noted Dan Rees, VP of Canadian Banking.
  • “We have identified in June…the customers we would qualify or characterize as vulnerable, through the course of July and into August we will have contacted all of those mortgage customers two months ahead of their scheduled prepayment and are working with them on a case-by-case basis and we are encouraged by what we saw through the month of August,” said Rees.
  • Asked what proportion of those would be considered “vulnerable,” Rees replied, “Less than 10% of those that are still in deferral.”

Source: Scotiabank Conference Call

TD BankTD-Bank

Q3 net income: $2.25 billion (-31% Y/Y)
Earnings per share: $1.21

  • TD’s residential mortgage portfolio was $206.1 billion in Q4, up from $197.5 billion in Q3 2019.
  • The bank’s HELOC portfolio rose to $92.1 billion from $90 billion a year ago.
  • TD’s residential real estate secured lending portfolio is 72% uninsured (up from 68% a year ago) with a 53% LTV for the uninsured portion (down from 54% in Q3 2019).
  • Gross impaired loans in the residential mortgage portfolio rose to 0.17%, up from 0.16% a year ago.
  • Net interest margin in the bank’s retail portfolio fell to 2.68% in Q3, down 15 bps from the previous quarter and down 28 bps from a year ago.
  • 56% of the bank’s residential mortgage portfolio is in Ontario (down from 51%), followed by B.C. at 20%, the Prairies at 14%, Quebec at 8% and just 2% in Atlantic Canada.

Deferrals & Provisions

  • Provisions for credit losses rose 74% over the last two quarters to $9.2 billion (124 bps) in Q3, up from 7.9 billion in Q2 and $4.9 billion a year ago.
  • Impaired residential mortgage loans ticked up to 0.07% from 0.06% in Q2.
  • Mortgages under deferral fell to 12% of the portfolio from 14% in the previous quarter.

Source: TD Bank Q3 Investor Presentation

Conference Call

  • “We continue to operate through challenging and uncertain conditions given the unprecedented impact from the COVID-19 pandemic and have added allowances for credit losses accordingly,” said Chief Risk Officer Ajai Bambawale. “I’m satisfied with the bank’s allowance coverage, which reflects our current economic outlook and our portfolio and geographic mix.”
  • In terms of sequential volume growth, TD was third among its competitors, noted Theresa Currie, Group Head, Personal Banking. “If I think about the quarter, we were competing in some sense with one arm tied behind our back,” she said. “As of August 24, we have fewer branches open than three of our four top competitors, and I think we’ve been somewhat more conservative with our safe reopening.”
  • Still, Currie added: “with the investments we’ve made in distribution, in operations, in automation, in training and with the network open, I feel like we’re well positioned to grow the business. And our retention was very strong at 60 basis points in the quarter.

  • https://www.canadianmortgagetrends.com/2020/09/q3-2020-bank-earnings-an-update-on-big-bank-deferrals/

CMHC: Don’t underestimate economic impact of COVID-19 on Canadian housing market

Banks & Bank of Canada DAZADA DIAMOND 9 Sep

CMHC: Don’t underestimate economic impact of COVID-19 on Canadian housing market

CMHC: DonThe Canadian housing sector will have to wrestle with some major short- and medium-term risks, particularly market uncertainty and weaker household incomes, according to the Canada Mortgage and Housing Corporation.

Despite strong recent performances in crucial markets, the prolonged economic impact of the coronavirus pandemic might continue influencing prices, sales, and new building projects, the Crown corporation said.

“While it will take several months for the economic impacts of COVID-19 to fully materialize, some factors are starting to work their way into in our financial results – for example, we are starting to see the impacts in our provisions for insurance claims,” said Lisa Williams, chief financial officer at CMHC.

Williams said that the agency is sufficiently equipped to respond to future market fluctuations.

“We remain in a strong financial position to bear the full impacts of COVID-19, and to take further steps to support Canadians and the economic recovery if necessary,” Williams said.

CMHC has reported net income of $566 million in the second quarter, considerably higher than the $379 million seen during the same time last year. Arrears stood at 0.34%, The Canadian Press reported.

However, the corporation’s claims expenses shot up by 711% to $256 million due to greater allocations for pandemic-related claims such as mortgages in deferral.

  • https://www.mortgagebrokernews.ca/news/cmhc-dont-underestimate-economic-impact-of-covid19-on-canadian-housing-market-332947.aspx