One of the “Big Three” credit agencies warned they expect a big jump for insolvencies. TransUnion gave the industry a look at recent macroeconomic and consumer credit activity this week. During the presentation, the firm’s analysts highlighted various deteriorating macro events. They warned lenders to expect a rising wave of defaults, as a “severe” risk scenario plays out.
A “Severe” Scenario Is Now Most Likely
As previously discussed, risk firms forecast in ranges – which depend on various factors. TransUnion analysts looked at over 40 different metrics, including forbearance and credit. The “base case” before the pandemic saw slowing credit growth, and rising delinquencies. As the pandemic set in, analysts from the firm began to think the medium case was likely. However, due to recent developments, metrics now show we’ve entered the “severe scenario.”
Canadian Mortgage Delinquencies Expected To Rise 200%
In the severe scenario, they expect the mortgage market will be hit fairly hard. By Q3 2020, they expect mortgage originations to drop by 43%. Average balances rise by 20%, as people stop aggressively paying off balances. Most interesting – the delinquency rate could rise 200%. The end of the third quarter would be around when the surge in mortgage deferrals begin to expire.
Non-Mortgage Credit Delinquencies To Also Rise
Rising delinquencies are expected across all segments, according to the firm. The moderate scenario sees non-mortgage delinquencies rise to just under 7% of accounts. In the severe scenario, they now expect non-mortgage delinquencies to hit above 7.5%. Insolvency experts generally see people default on non-mortgage credit, before missing mortgage payments.
Overall, the firm’s outlook seems to be in-line with what other credit risk firms have been saying. Insolvencies were rising and credit growth was slow last year. Now with a recession approaching, they expect the trend to accelerate. Over the long-term, the firm also warned, “entire sectors of the economy will have long lasting impacts and some may not recover (travel, small business, ride-sharing, Commercial real estate).”
Like this post? Like us on facebook for the next one in your feed.
We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.
Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.
cmhc better not be tapping taxpayers for a bailout.
what are these guys paid for other than to transfer risk from banks to taxpayers.
They are a Crown Corporation. How else are they going to pay for a bailout? When a disaster takes place and an insurance company has to payout it’s the share holders that suffer the loss. That’s the whole point of the CMHC. Let the taxpayers take the fall and backstop the entire residential real estate market.
It would be one thing if the premium on the risk was fairly priced.
Quite another when private insurance companies are excluded from setting the premium on hundreds of billions of sub-prime mortgage junk CMHC has gleefully insured.
In the end, there is nobody to represent the interest of the taxpayer. Despite being a crown corporation that should be putting its owner’s (i.e. taxpayer) interests first, the CMHC seems to have been doing the bidding of private banks. Insuring high risk garbage mortgages for peanuts puts taxpayers in the firing line when tons of default start rolling in – as it is right now. The premiums collected do not even begin to make up for the impending losses taxpayers are about to suffer.
The whole scam is designed to guarantee profits to banks that profited from creating that junk in the first place. Moral hazard up the wazoo in other words.
Whoever’s interest CMHC is representing, it certainly isn’t the taxpayers’.
Absent from this article, but present in the report – in the severe scenario, stimulus programs don’t help on the downside. They do provide cheap money for whoever cleans up the dead bodies though, so expect private funds to have a field day.
Which is why private lending dried up. There’s plenty of liquidity. There’s just more risk than it’s worth.
Many CDN’s were in serious trouble before the virus, living on a knife edge.. and trying to own a house they cannot afford..
What will be their out come after the mortgage furlough is over and they see even higher mortgage payments…. and no job…??
A torrent of overpriced houses up for sale all at the same time.
The loss will be dumped on the taxpayer.
Why do you think govt was complicit in enabling banks to use taxpayer and taxpayers alone as insurance against mortgage default via CMHC.
By making the taxpayer insure and now own these sub-prime mortgages, the loss can be socialized.
There is no downside to being a bank originating sub-prime CMHC insured mortgages.
Heads the price of RE goes up and they pocket profits.
Tails the price of RE goes down, mortgage defaults start rolling in and CMHC pays out the loss to the bank.
The premium on insuring that junk is deliberately kept under-priced by CMHC through the exclusion of the private insurance market. The last thing banks want is price discovery on the enormous risk taxpayers are made to assume insuring default prone mortgages for peanuts.
The more i look at it, the more of a scam all this banking & financing, insurance and govt seems.
The direction things are moving to, taxpayers will be on the hook for the all the programs for giving out money and paying millions of peoples salaries and support benefits that the PM and his friends drum up everyday.
That money is monetized by the banksters by creating debt and selling it as Treasury Bonds (so called safe Government Debt). Every month more and more $$ are required to pay for only the interest for the debt, while the original debt is simply rolled over perpetuity (means never get paid ever!) thereby saddling generations of CDNs in SERFDOM for ever!
It is all short term thinking that prevails and the career politicians and civils servants will keep collecting higher salaries and pension benefits of 6 figure lifetime guaranteed pensions. While the taxpayers are left high and dry and fed with breadcrumbs.
The problem is with the taxpayers! They get mesmerized by the debt fueled promises the politicians offer during the election campaigns to win over peoples votes. Until and unless the voting public begins to realize where and who is going to end up paying for the promises. The cycle cannot be broken. It is simply a vicious cycle of boom and bust. 7 years of plenty and 7 years of famine (this goes back in Biblical times) Humans will always make the same mistakes every 90 years or roughly 4 generations.
Mortgages are the last to default. Prices will only fall about 5% this year, not to be confused with average prices which will be a much bigger number. A 200% increase in mortgage defaults might be 2 or 3%. I’ve been there, selling and listing thousands of homes over a 50+ year full time real estate career.
You sound confused. After 50 years maybe it’s time to call it a day.
that’s 200% increase in the 3rd quarter before the deferrals expire.
what will the rate be after the deferrals expire at the end of the 3rd quarter?
i.e. in the 4th quarter
certainly not 200%.
that is assuming govt does not socialize these bad mortgages that banks profited from creating onto the taxpayer’s back.
@Norm, you are usually correct to say “mortgages are the last to default” if we weren’t already in an over-inflated market where people are $300 away from default and living paycheck-to-paycheck.
I had a tenant who was a highly leveraged multi-millionaire in the 1980s/90s boom-bust … ended up declaring bankruptcy after loosing 40% value and trying to hold out for the recovery that didn’t come for 15 years (1990 to 2005) just to reach the same dollar value but don’t forget about the 100% loss to inflation over 15 years.
Canada housing price bubbles are much worse now than 30 years ago, worsened by ultra-low interests rates that are guaranteed to go up marginally by 2-3% which equals to 20-30% increase in mortgage payment, even after taking into account of principal repayments.
For the record it said “200% rise in delinquencies” failing to make a months payment ,not bankrupt.
Loans/ mortgages are usually defined as nonperforming when a period of 3 months occurs..
Hey NEO dont come here and spew your garbage…crap mouth. speak up boy ! or girl what ever you prefer and add your two cents. Don’t just diss someone here like you did and walk..Lets hear some of your Ideas..Be involved so we can judge you.. hopefully you got something to say that makes you seem a little intelligent other than that that $h!T.
The irony of your post is obviously lost on you.
People need to understand one simple fact, mortgage deferrals are at approximately 200 billion in Canada. All the big 5 lost provision are at not even 20 billion. All it takes is 10% of the deferral becoming delinquent for the numbers to look really ugly. Time to let real estate prices correct, this will help recovery since speculators will be forced to sell and use the money for other means which will help the real economy not just paper wealth.
There will be no outflow of capital since the entire world is in trouble. This is the best time to pop the real estate bubble.
Comments are closed.