The lender panel is a perennial fan-favourite at the National Mortgage Conference and this year was no exception.
The panel, featuring executives from four key mortgage lenders, covered a number of topics, including emerging trends and issues facing the industry.
This year’s panel included:
Yousry Bissada, CEO, Home Trust Company
Marina Bournas, President & Chief Executive Officer, RFA Mortgage Corporation
Jason Ellis, President and CEO of First National
Hassan Pirnia, Head, Home Financing & Personal Lending, BMO Bank of Montreal
The panellists weighed in on a variety of hot topics, including their take on the current level of regulatory oversight in the mortgage industry and the resiliency shown to date by borrowers renewing at much higher interest rates.
We’ve included some of the highlights below.
What were the biggest challenges of 2023?
“It was more of the same. A lot of uncertainty, a lot of volatility,” he said, adding that the markets received another 175 bps of rate tightening over the past year. “Of course, that puts stress on new borrowers who get concerned about what they can really afford…and it put even more stress on renewers.”
“I think 2023 certainly kept us on our toes. It was an extremely unpredictable one and it made planning difficult both for lenders and from a broker’s perspective.”
“I would say we’ve been worrying and sweating about the renewals that are coming up, [but] I don’t think it’s a concern now. But if interest rates go higher and higher in 2025 and 2026, I certainly think there’s going to be a cohort of customers that will be impacted by that.”
“I think the media put a very negative stigma on our industry and it didn’t show the resilience of our industry. I think that the data didn’t align with essentially what was happening in our world, and it put a negative spin on what was happening. And I think it’s an important thing to to actually talk about the resilience of what we’ve seen this last year.”
“I think we went into 2023 thinking the biggest challenge was going to be potentially dealing with higher arrears and higher defaults…what we found was, surprisingly, a housing market (during the first half of the year) spurred a little bit by a belief that the Bank of Canada was finished [raising rates], spurred a little bit by the regional banking issues in the U.S. that brought the yield curve down, at least temporarily. Surprisingly, service loans and staffing became the topic. So, we didn’t expect that, but it turned out to be a great year.”
How would you describe the current level of regulatory oversight in the mortgage industry?
“There’s no question that since the global financial crisis, the pendulum of regulation has definitely swung dangerously close to too much. But I guess if I were to be an apologist for the government, when you look to financial services in an effort to try and adjust where the economy is, the biggest lever they have to pull is always going to be the mortgage market. And I think we’re always going to bear the brunt of their aggression.”
“But as far as the current state of regulation, one question people like to ask is do we think that regulators are going to start reversing course? And the answer is no, they are not, not as evidenced by the consultation paper on B-20. They’re not talking about walking it back. They’re talking about more prescriptive GDS/TDS,more prescriptive amortization and adding loan-to-income and debt-to-income as metrics.”
“I actually think they have a really difficult job. We are living in a dynamic environment where these policies and procedures and regulations are trying to keep up with the changing environment. And sometimes they are too late or too early, too much or too little. It’s hard to get it right. I think generally they’re doing a decent job. I think the key thing here is we need principle-based regulations.”
Is the current mortgage stress test still doing its job?
“I think there’s an opportunity for a better dynamic approach. I think the stress test did its job. I believe that it was put there in order to ensure that we were able to qualify clients at renewal. It was put there to ensure there was a safeguard for them. And it did its job. Whether it is too extreme, considering we’re at the peak of the interest rate cycle right now, I think it is.”
The million-dollar cap on insured mortgages
“I think the million-dollar cap was a poor idea from the start because it was addressing a problem that didn’t exist…and since 2012, certainly the Greater Vancouver and Greater Toronto Area home price indices have increased by 225% to 250%. So, it is time to revisit the $1 million cap. It needs to be a sliding scale. There has to be some reflection maybe on the region that you’re lending in, but it has to be addressed.”
“And for the sake of balance…even though the Liberals suggested increasing it as part of their campaign, in the subsequent years there was the pandemic. And I have to say, the idea of modifying prudential regulation that would havefurther stoked demand-side house inflation, that probably wouldn’t have been a good look. But with rates where they are now, it’s time to change that.”
How have borrowers handled the rate increases so far?
“We are seeing borrowers who have been incredibly resilient. We consider ourselves a canary in the coal mine because the average duration of our Alt-A mortgages is 14 months. So, almost all of our portfolio has renewed since the days of a 0.25% Bank of Canada target rate. We get to see how people are performing and they’ve been so resilient.”
“How much more pain can they take? I don’t know. But so far…our arrears are no worse than they were in 2019 or 2018. The entire book is coping with it.”
“We have adjustable rates at First National and all throughout last year and then again in the summer we saw those borrowers show their resiliency by making those payments and carrying on. So, our total portfolio under administration is probably 20% to 25% adjustable with the balance fixed. The arrears on both those are identical to each other. And I think as much as [Home’s] 1-year renewals are a canary in the coal mine, so is the ability of those adjustable-rate borrowers.”
Taking a look at the latest fraud trends
“I think when affordability becomes an issue, you just naturally see fraud on the rise. Typically, you’ll see more for fraud for shelter. But I think what’s changing is just the landscape. We’re seeing more borrowers having multiple jobs. and we’re seeing more borrowers having multiple sources of down payment. So, it’s actually very important to understand the story.”
“And this is where brokers are key in our relationships and are that first line of defence for us, getting to know their clients and putting that mitigation together. What I think is a trend is it’s becoming very sophisticated. It’s getting harder and harder to actually catch fraud.”
On Home Trust exiting the prime lending space
“Alt-A has been part of our DNA from the very beginning. The A-business was a small part of the business that we were growing it, but this now is just going to allow us to spend all our money, all our innovation, and all our energy on alt-A and bringing new products, bringing you better service in an area we are by far better at.”
“I’ve had some industry questions about the renewals of the A-business. There are many ways to renew, so don’t worry about your clients. We’ve got this, we’ll take care of them. And there are many, many ways that we can still go forward.”
Photo credits: Joel Nadel / Event Imaging