Canadian real estate owners are still falling into arrears at a higher rate. Canada Mortgage and Housing Corporation (CMHC) data shows an uptick in arrears during Q2 2020. The agency notes the trend wasn’t just in one type of lender either. It was right across all segments of lenders.
Mortgage Delinquencies and Arrears Rates
In Canada, a mortgage is delinquent at any point it’s past the due date. A lot of mortgages become delinquent, but most payment issues are resolved soon after. After 30 days, home lenders try to contact the borrower and resolve the payment term. No one loses a home over being just 30 days delinquent. It’s when a mortgage is over 90 days delinquent, that it is considered in arrears. That implies the borrower hasn’t paid in 3 months, and ignored the lender’s attempts to contact them. At this point, the lenders can proceed with the foreclosure process. Today we’re looking at the rate of mortgages over 90 days delinquent, aka in arrears.
There’s a few segments of mortgage lenders the CMHC looked at – chartered banks, credit unions, MFCs, and MIEs. Chartered banks are the majority of the mortgage market, and includes the big bank you have an account at. Credit Unions are member owned financial institutions that tend to be very-risk focused. Mortgage Finance Companies (MFCs) are a non-traditional player in the mortgage market. They underwrite and service broker-originated mortgages, sometimes using banks to fund operating capital. Mortgage investment entities (MIEs) are financing entities that pool investor capital to lend as a mortgage. This can include non-bank lenders and private lenders. The last two tend to deal with a more high risk clientele. Higher risk clients mean a higher arrears rate when compared to other segments. That’s why watching the growth across all segments is more important than the actual rate.
All Types of Mortgage Lenders Are Seeing The Arrears Rate Rise
The agency found all types of Canadian mortgage lenders have seen their arrears rate rise in the latest numbers. Chartered banks saw the arrears rate hit 0.26% in Q2 2020, and increase of 8.34% from the previous quarter. Credit unions reached an arrears rate of 0.18%, up 12% from the previous quarter. MFCs reached an arrears rate of 0.23%, up 9.52% over the same period. MIEs had the highest arrears rate at 1.85% in Q2, up 6.93% from the previous quarter. All segments saw growth, even if they dealt with lower risk borrowers.
Canadian Mortgages In Arrears
The total number of Canadian mortgages in arrears.Source: CMHC, Better Dwelling.
The trend of higher arrears rates in Canada began last year, and still continues. It’s very unexpected for the second quarter though. The pandemic saw lenders become very generous with repayment terms. An unprecedented number of government relief programs were also offered in the quarter.
As previously stated, the actual rate of arrears is hard to draw insights from as a cross comparison. One insight that can be taken away – arrears are rising across all lender types. A lower than usual arrears rate was expected, considering the system was mostly halted.
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