ALTERNATIVE LENDING UPDATE NEWS BRIEFS Borrowers still struggling to understand B-20 changes
A significant proportion of Canadian consumers is still unable to grasp the full implications of B-20, despite the rules having been in effect for more than a year now, according to a new TD survey. The bank found that 43% of Canadians are not confident in their knowledge of the mandated mortgage stress test. In addition, 59% said that they don’t understand the impact of the stress test on their first or future home purchases, while 81% admitted that they don’t understand how a potential mortgage rate hike will impact their finances.
Bank of Canada launches HELOC data-gathering initiative
The Bank of Canada has announced that it will begin collecting more detailed data on home equity lines of credit in an effort to bolster its analysis of financial system threats. Consumers have increasingly been leaning on HELOCs since the B-20 regulatory changes went into effect last year; by the end of January 2019, Canada’s Big Six banks had around $223 billion in outstanding HELOCs. “Given the flexibility HELOCs can provide, borrowers can use them even in a downturn or if they lost their jobs to sustain household spending and continue to service their other debt,” Robert Colangelo of DBRS told Bloomberg. “It makes it difficult for lenders to identify emerging credit problems.”
Broker group pushes for changes to German report
The recent bombshell report from former RCMP deputy commissioner Peter German on money laundering in Canada’s real estate sector had some misconceptions that the CMBA-BC will be pushing to change, according to the
association’s CEO, Samantha Gale. “The Peter German report makes the point that private lenders are not licensed, and they referred to them as ‘unregulated lenders,’ so one thing we’re going to be doing is advising Peter German of the licensing requirements of private lenders,” Gale said. “Here in BC, private mortgage lenders are required to be licensed, and so too are their employees. We’ll talk to them about some misconceptions.”
Self-employed professionals boosting alternative market
Private lenders have been on the upswing over the last few years, and among their most valuable customers are selfemployed borrowers – specifically those who have written down their income to minimize their tax burden, says Matrix Mortgage Global COO Laura Martin. “The B-20 stress test has made it such that Schedule A banks and trust companies have had to turn away 20% more borrowers because they don’t fit the guidelines,” she said. “[Private lenders] are much more willing to view borrowers’ eligibility from a big-picture perspective … and do not have set cut-off guidelines for income and credit.”
Reverse mortgages in Canada reach historic high
Spurred by greater awareness among senior Canadians, the balance of reverse mortgage debt nationwide reached a record high of $3.54 billion in February, according to data from the Office of the Superintendent of Financial Institutions. That figure was 0.84% higher than the month before; the annual increase of total reverse mortgage debt was 28.6%. While the annual pace of growth in the segment has slowed since 2017, it’s still on track to double every three years, according to Better Dwelling’s analysis of the OSFI numbers.
Trouble on the horizon? Industry observers have raised a red flag about worsening credit conditions across the Canadian financial system
Canada’s banks and alternative lending sector alike are veering ever closer to major loan losses, according to multiple observers. Steve Eisman, who warned about the 2008 US housing market crisis in his famed book The Big Short, recently told the Financial Times that Canada’s finance sector CEOs are “ill-prepared” for any potential credit losses that might arise as a result of an economic downturn in this country. Among the at-risk lenders highlighted by Eisman were RBC, CIBC and Laurentian Bank, along with alternative lender Home Capital Group and insurer Genworth MI. However, Eisman stopped short of predicting an actual meltdown, saying that Canada still has some elbow room. “This is not The Big Short: Canada – I’m not calling for a housing collapse,” he said, emphasizing that he’s just “calling for a simple normalization of credit that hasn’t happened in 20 years.” A CIBC Capital Markets report released in mid-April echoed Eisman’s worries, cautioning that amid worsening credit conditions, losses are looming just beyond the horizon. “Given the age of the current cycle and soft Q1/F19 reporting in which most banks saw notably weaker loan loss provisions, it does feel like the minute hand on our Credit Doomsday Clock moved a little closer to midnight – not to signal that the end of humanity approaches, but that the end of
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