Canada

Two-Thirds of Mortgages In Arrears At Canadian Non-Bank Lenders, Are Uninsured

A lot of Canadians are going to non-bank lenders for their mortgage needs. A Statistics Canada (Stat Can) survey shows a substantial amount of new loans at non-bank lenders in Q1 2019. The high growth rate is also accompanied by a larger than typical rate of arrears for Canada. Most of the mortgage debt in arrears is uninsured.

Canadian Non-Bank Lenders Hold Over $324 Billion In Mortgage Debt

Even with a slow first half of the year, non-bank lenders still did a lot of mortgage business. They added 49,402 insured mortgages in Q1 2019, totaling $14.14 billion of mortgage credit. Non-bank lenders now hold 621,730 insured mortgages, totaling $138.55 billion in mortgage credit. That works out to 7.95% of mortgages added to the books in the quarter. Not a bad haul.

Mortgages Held By Canadian Non-Bank Lenders

The number of residential mortgages held by Canadian non-bank lenders in Q1 2019.

Source: Statistics Canada, Better Dwelling.

Uninsured mortgage credit printed even larger numbers for non-bank lenders. They added 74,769 uninsured mortgages in Q1 2019, totaling $18.63 billion in mortgage credit. This brought total uninsured mortgages to 1,099,121, adding up to $186.38 billion in mortgage credit. That means 6.80% of mortgages at the end of the quarter were from new loans.

New Mortgages At Canadian Non-Bank Lenders

The number of new residential mortgage issues at Canadian non-bank lenders in Q1 2019.

Source: Statistics Canada, Better Dwelling.

Canada’s Non-Bank Lenders Hold Over 33,000 Mortgages In Arrears

Non-bank lenders appear to have more mortgages in arrears than typical lenders. They held 13,069 insured mortgages in arrears in Q1 2019, totaling $2.48 billion in mortgage debt. Of that, 1,704 of them, represents $315 million in mortgage debt, was over 90 days in arrears. That represents an arrears rate of 2.10%, much higher than the national average.

Mortgages In Arrears At Canadian Non-Bank Lenders

Mortgages in arrears at Canadian non-bank lenders, for Q1 2019.

Source: Statistics Canada, Better Dwelling.

Uninsured mortgages are doing a little worse than insured mortgages. Non-bank lenders held 20,224 uninsured mortgages in arrears in Q1 2019, totaling $3.78 billion. Of those, 2,359 were in arrears for more than 90 days, totaling $587.77 million in mortgage debt. That represents an arrears rate of 1.84%, lower than insured – but higher than the national average.

Non-bank mortgage lenders are still doing a lot of business. They represent about a fifth of all household mortgage debt. However, it also appears they are disproportionately represented for mortgages in arrears.

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19 Comments

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  • Kamal 3 weeks ago

    Taxpayers are on the hook for 1/3 of these boondoggles though?

    • RainCityRyan 3 weeks ago

      “[uninsured] represents an arrears rate of 1.84%, lower than insured – but higher than the national average.”
      Looks like ever so slightly more than 1/3rd.

  • Snarky 3 weeks ago

    Lately the news has been capturing a prediction for a recession to hit the US in 2020. Am wondering if it occurs how will Canada fare. Will our World Class cities continue to thrive?

    • Shiva 3 weeks ago

      Lots of condos slated to be occupied by 2022 and 2023 in Scarborough. I hope that there is a recession. It doesn’t affect me, because I don’t flip houses or work as a realtor for a living.

      • Dumb Wealth 3 weeks ago

        If there is a recession it will hit everyone in Canada. Many industries are directly or indirectly tied to real estate. Look at Canada after the real estate bust in 1990…it was a pretty lacklustre decade as real estate slowly bottomed and then recovered.

  • devilsadvocate 3 weeks ago

    Canada side stepped a steep recession compared to the US in 2009. During the GFC of 09 Oil and real estate saved us. Not sure if this time around we will have leg to stand on but my opinion is we might have a harder time.

    CPI is under control with the stats can jimmy-rigged way of counting numbers. Jobs somehow are still increasing even if the number again are questionable. Furthermore if there is a recession foreign investments could potentially dry up, this can slow the pace of home sales in Canada I believe the last leg we have to stand on… Then we will find ourselves in a hard place.
    Don’t forget if there’s layoffs, then there’s less disposable income then there will be more bank repos hence more inventory which leads to lower prices… any thoughts?

    • Grim Reaper 3 weeks ago

      Canada sidestepped the 2009 recession but also didn’t benefit as much as the USA during the so far decade long bull markets. So many mortgages already in arears causes me to wonder why real estate prices are so high and still rising in many places in Canada.

      • devilsadvocate 3 weeks ago

        I would say that the prices are sustained by foreign buyers, so much so in Vancouver and Toronto. I travel often around Canada its obvious so much properties are a vehicle to park money. Travel to China and you’ll freak out at their infrastructure projects the “ghost cities” build it they will come…
        I can attest that they are selling units but there’s no one living in them, merely a mean to park money. I think that the moment that we have a next liquidity crisis this bubble will find its prick! think of it this way, lenders right now often lend on margin the moment that risk is priced in to the lending market due to a liquidity event there will be less money going around bank wont trust each-other overnight rates will spike regardless what BoC sets interest rates. This is when we can see real estate take a hit. typing this up with haste while working hope I wrote this up clearly enough…

    • John 3 weeks ago

      I was going to comment basically this.

      What leg do we have? We fight tax increases. Our forestry, oil, manufacturing , industries are sucking. I hear auto isnt great either. Commodities could rise but not in a taking global situation.

      We’re basically primed to be hit hard in the next recession and Europe has shown not to waste time with negative rates.

      It needs to hurry up and happen so we can hurry up and recover.

  • straw walker 3 weeks ago

    As home buyers fail the stress test from chartered banks they are taking out mortgages else where ..which results in higher mortgage failures..

    • AJ 3 weeks ago

      If it’s uninsured they have 20% or more equity in the property, what’s the risk?? Bank takes over and sells for more than the original purchase price as demand is high.

  • Shayn Yoe 3 weeks ago

    The article mentions that non-banks are out-pacing the national average for arrears.
    But what is the national average?
    Or what are the bank arrear rates?
    (For perspective)

    • PT 3 weeks ago

      National arrears past 30 days is only 0.29% according to Equifax. It gets lower at the past due increases. I believe it’s the same author that wrote about it a few weeks ago.

  • TN 3 weeks ago

    This article is factually incorrect so is your commentary that they “appear to hold a disproportionate number of arrears.” For starters, you have not included the relevant data of BANK lenders to make this comparision…. There are 1,099,000 uninsured mortgages held at non-bank lenders.
    if 2300 of them are > 90 days past due, the arrears rate is .021%. Arrears rates are based on total number of mortgages > 90 days past due. If you consider the CBA data for banks the arrears rates for 90 days delinquency these numbers are comparable and at all time lows.
    Insured mortgages from “non-bank” lenders must meet the same criteria as those from a bank. Taxpayers take on that risk because CMHC, our largest insurer, is owned by the government. However uninsured mortgage risk from non-bank lenders is borne by the investors of those companies. That is how it should be….the government should be encouraging lenders to accept their own risk…

    • PT 3 weeks ago

      It appears your comment is the only thing factually incorrect.

      In arrears, even as defined by Statistics Canada is any payment overdue. In arrears over 90 days is what you’re referencing, which are two totally different things.

      If you also wanted to get technical, non-bank lenders primarily operate in Ontario and BC, not nationally. The 0.21% for less than 90 days would be very, very high for those markets. Less than 90 days may not be as much of a risk, but it’s factually inaccurate for you to say that’s not the case.

      There’s only ~44,000 mortgages 30+ days overdue in the latest Equifax file. If Statistics Canada is correct, and 34,000 of them are at non-bank lenders, that would imply disproportionate representation, no?

      BTW, it gets obvious you work at a non-bank lender, when you get irrationally angry, not realizing the delinquency rate is a regular discussion both in their articles, and on the forum.

      • TN 3 weeks ago

        No, the article is factually incorrect……”Non-bank lenders appear to have more mortgages in arrears than typical lenders.”…this statement is unequivocally false….. firstly, “appear” in comparison to what?
        Firstly Equifax can only compile data of those lenders who report to Equifax, whereas the CBA data is compiled for all banks… and the arrears rate for mortgages > 90 days at schedule I banks is .023% as of June 2019. This is comparable to the > 90 day delinquency across banks… for your education – https://cba.ca/mortgages-in-arrears
        Secondly to your comment “non-bank lenders primarily operate on ontario and BC and .021% for less than 90 days….” .021% is for GREATER than 90 days… and this is historically low delinquency regardless of the market I’d also like to add that the banks that regularly allow clients to “skip a pay” and reset the amortization – thus under-reporting true delinquency.
        Ensuring accurate information gets disseminated without bias is far from irrational.

        • PT 3 weeks ago

          Once again, YOU are WRONG. The CBA is 10 of 30 schedule I banks. There’s another ~100 or so II and IIIs.

          If your problem is with Equifax being incomplete, then you’re going to be surprised to know the CBA starts include even fewer mortgages than you’re using in your example. You also seem to only think 90s days over arrears is a mortgage in arrears, but It’s only the ones that are 90 DAYS OVER. That doesn’t include mortgages in one to 89 days in arrears. Seriously, spring for some equifax institutional reports.

          Seriously, dude. Relax if you don’t know what you’re talking about. Working at a non-bank lender doesn’t make you an expert across the board on all things outside of your domain. If you work at a small non-bank lender, you probably don’t even have access to a comprehensive data set.

  • Snarky 3 weeks ago

    Not everyone will go into arrears, some people just check out before it becomes an issue. Many listings bought in 2017 and 2018 and sold at price bought or lower. Losing money but saving face. We gotta keep up with the Joneses.

    • Paul 3 weeks ago

      Snarky,

      Exactly. Some homeowners who saved for 10years could have their down payment wiped out and someone else will pickup the house they just spent three years fixing up at no extra expense.

      BD has been tracking these stats because arrears is an easy checkup on the health of your mortgage industry. This isn’t the first article to point out that the alternative lenders are vulnerable.

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