Canadian real estate owners are turning to non-bank lenders across the country. Statistics Canada (Stat Can) released the first results of its Survey of Non-Bank Mortgage Lenders. Unfortunately, since it’s the first survey, historical comparisons can’t be made. Though it does shine a light on a relatively opaque industry. The most interesting insight revealed is how many households are on the brink delinquency.
Non-Bank Mortgage Lenders
Non-bank mortgage lenders are a big part of the Canadian real estate industry. In Q4 2018, non-bank mortgage lenders held over 1.7 million residential mortgages. The value of the mortgage debt held adds up to $325.5 billion at the end of the same quarter. These lenders sound unofficial, but they’re a huge segment of the country’s borrowing. The biggest difference from a consumer perspective is you have to get one of these from a mortgage broker vs a traditional bank. Being a non-deposit taking institutions, these lenders don’t usually have branches.
Non-bank mortgage lenders sound less legit, but they’re incredibly important to the market. They provide liquidity. The increased liquidity and competition helps to keep rates low. In fact, some non-bank lenders have lower rates than traditional banks. For example, the country’s largest non-bank mortgage lender currently has lower rates posted than a Big Six bank. That isn’t to say they’re always better than a bank (some provide nose-bleed rates), but they aren’t always worse either.
Non-Bank Mortgage Lenders Held Over $325 Billion In Debt
Non-bank mortgage lenders held just over a fifth of institutionally held mortgage debt. The lenders held $325.5 billion in mortgage debt, spread over 1.7 million mortgages. Uninsured was $188 billion of the total, spread over 1.1 million of the mortgages. That works out to 57.8% of the value, and over 65% of the mortgages. In other words, more than half of the debt is not insured.
Canadian Non-Bank Mortgages Outstanding
The balance of mortgage debt held by Canadian non-bank mortgage lenders in Q4 2018, by insurance.
Source: Statistics Canada, Better Dwelling.
Over 152,000 New Mortgages Issued In Q4 2018
Non-bank mortgage lenders are showing huge growth. In Q4 2018, non-bank mortgage lenders extended 152,554 mortgages, which represent 9% of the total mortgages held in the quarter. The value of those mortgages was $39.3 billion, representing 12.1% of the total value of mortgages held. There were 93,197 (61.1%) uninsured mortgages issued in that number, worth about $22.8 billion (58%) of the debt. Unfortunately, since this is the first survey data published, we don’t have year-over-year growth. Though increasing the amount of mortgages by nearly 10% is a huge growth metric by itself.
Canadian Non-Bank Mortgages Extended Q4 2018
The dollar value of mortgages extended by Canadian non-bank mortgage lenders in Q4 2018.
Source: Statistics Canada, Better Dwelling.
The new mortgages extended in the most recent quarter were substantially larger than the average held. Uninsured mortgages extended had an average value of $244,617 in Q4 2018, 43.86% higher than the total average. Insured mortgages extended had an average value of $278,537 in Q4 2018, 20.66% higher than the average of the total held. Yes, the existing mortgages likely paid down a substantial amount on their mortgage debt. Still, nearly one in ten mortgages held by non-bank lenders were extended in just the quarter.
Over 34,000 Mortgages Were In Arrears In The Quarter
Finally, Canadians now have some insight into the number of mortgages in arrears at non-bank lenders. There were 34,638 mortgages in arrears in Q4 2018, representing $6.4 billion in value. Uninsured mortgages represented 21,641 of the mortgages, with a value of $4.0 billion – or 62% of the value and number of mortgages. The ratio of mortgages in arrears is ~2% for both the number of mortgages and the dollar volume. For those unaware, a mortgage in arrears means the borrower is overdue by at least a day.
More serious mortgages in arrears are on par with traditional bank lenders. There were 4,249 mortgages in arrears by over 90 days in Q4 2018, worth a combined value of $930.4 million. Only 2,524 of those were uninsured, with a value of $587.2 million. Mortgages in arrears over 90 days represent 0.25% of all mortgages held by non-bank lenders. The ratio of mortgages in arrears over 90 days is the same as those published by the banker’s association.
Canadian Non-Bank Mortgages In Arrears
The total number of mortgages in arrears (overdue), held by Canadian non-bank mortgage lenders in Q4 2018.
Source: Statistics Canada, Better Dwelling.
The hidden gem here is the difference between mild delinquencies and severe. Credit agencies warn the more late payments made, the higher the risk of default. It might seem innocent when a payment is “only” 30 days overdue. But borrowers that are behind on payments are more vulnerable to shock. To put it bluntly, there’s households finding it hard to make payments when times are good. What happens to these households when times are rough?
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Ask the banks what “curing” is. You’ll see defaults as reported by the US aren’t all that different from Canada.
Would love some standard reporting between Canada and the US. Better dollar volume reporting with IFRS-9, but still a lot of junk stats allowed reporting.
It’s not that big of a deal if end up paying the bills before they hit 90 days. The ultimate issue is can they pay for their home, right?
Not exactly how it works. The more missed payments, the more risk is building up in the debt pipeline. A few hiccups force a sudden spike, which is why the rise is so sharp in a recession. If a downturn hits, that’s 8x the volume of late people that could become delinquent.
Equifax Canada’s head said IIRC they expect defaults to rise in Canada this year, as a direct result of an increase in the number of people falling slightly behind on payments. First you miss a month. Then you miss a couple. Then you enter the statistic.
The distribution is going to be key. I doubt many of those late on their payments are low debt mortgages from Newfoundland. More likely they’re high payment debt from recently acquired debt. The average may only be $200,000, but how many of these people bought their house when a $300,000 got you a mansion in Toronto, 20 years into their 25 year amortization? That’s being balanced with people that have $1,000,000 in debt, 3 years in to make the average.
Funny, the first thing I did was to start crunching the numbers too. Here’s what I got from this article.
1) TOTAL: “$325.5 billion in mortgage debt, spread over 1.7 million mortgages.”
= $191,471 ave
2) ARREARS: “34,638 mortgages in arrears in Q4 2018, representing $6.4 billion”
= $184,768 ave
3) 90+D ARREARS: “4,249 mortgages in arrears by over 90 days[…] value of $930.4 million”
= $218,969 ave
Not hard to get the message here.
Being late a single day late is a banking error, “Oopsie doodle, sorry honey I forgot that the payment was coming out of that account … oh well better fix it.”
Being late 90 days has a MUCH higher average outstanding mortgage and be directly from households overextending themselves. These averages are nothing compared to a 20% down payment on anything with a roof in Rain-couver.
Once again, there’s the distribution issue. How many of those deep in arrears are people seniors sitting on 20 years of mortgage debt, vs Vancouver money launderers that just stopped paying their bills?
Tough to figure out with a deeper dive. Just remember that seniors are the highest segment of people to default.
Absolutely correct the distribution curves are not provided, but even with just the three averages we can make some educated guesses.
The group has an average 191k.
A subset of this group has a lower average (184k: -7k delta).
– Therefore the distribution of this curve has shifted to the left.
– Why have we shed part of the population that has higher total outstanding mortgages?
A subset of this subset has a much higher average (219k: +35k delta).
-Therefore the distribution has shifted further right.
-Between the 1day in arrears and 90 days we’ve lost MUCH of the population that had lower total outstanding mortgages.
I don’t dispute that seniors are disproportionately represented in defaults. I don’t think that those defaulting have had their homes for 20+yrs, unless they’ve been eating the equity the whole time.
With more data we maybe able to tell more about these folks (old/young, TLV ratio, where in the country etc), but at the end of the day, bad debt is bad debt. It’ll have to be cleared from the system some how.
Doesn’t matter if you bought for 1.5mil and only have 220k outstanding. If you can’t pay the debt it’ll have to be liquidated (cause consumer proposals won’t fly with a mortgage). So if your underlying asset has dropped, bye-bye wealth/retirement.
Never really thought about it, but non-bank lenders having the same default rates as the big banks makes sense. They have to control more of their capital risk, so they’re more likely to shift high borrowers to the private market.
Interesting to see Sub Prime Lender Home Capital Stock hit new 52 week highs this week. All must be well.
Only in Canada could a stock be down 65% from peak, but people still boast about the 52 week performance.
If you’re trading short-term, it doesn’t matter if it’s a turd – you’re trading not trading fundamentals. People would appreciate keeping your garbage insights to yourself.
Then please don’t fixate on monthly real estate data – take a 10 year view.
Home Capital – Another new 52 week high today (life is good in Sub Prime Canada) now a two + year high. Things have definitely turned up…
Yep, things will never stop climbing, better hurry and buy more condos, after all whats happening in Vancouver is isolated and will never happen anywhere else!
Lol, keep pumping! not too many suckers left.
” Canadian Non-Bank Mortgage Lenders Held Over 34,000 Overdue Mortgages” to a sane person this would be bad news.