National sees no mortgage stress at higher rates

March 20, 2023



Canada’s largest non-bank lender, First National Financial LP, says it hasn’t seen any signs of stress among its adjustable-rate or fixed-rate borrowers who are renewing at higher rates, according to a report in Canadian Mortgage Trends.
During the company’s fourth quarter 2022 earnings release, president and CEO Jason Ellis said he remains encouraged that not only is the 90-day arrears rate still low, but the 30-day arrears rate—a leading indicator—is down from the previous quarter.
“At this point, all of our adjustable-rate borrowers have absorbed their new higher payments with a great deal of resilience,” he said during the company’s earnings call.
“As it relates to the fixed income borrowers, who have been renewing into this environment, they’re renewing out of mortgages that are anywhere from 200 to 300 basis points lower than today’s market,” he added. “We’re seeing renewal rates consistent with our historical renewal rates and we’re not seeing any stress at the time of renewal from borrowers who are choosing to perhaps not renew or renew away. So, so far it would seem the Canadian borrower has adjusted well to the new environment.”
Ellis offered his take on the Office of the Superintendent of Financial Institutions’ proposed “four-to-one” loan-to-income benchmark that is currently in the market for discussion.
“I think the idea of a four-to-one loan-to-income, or some other kind of loan-to-income metric, won’t have a significant impact on new originations going forward because at the new higher rates, debt-service ratios, gross debt and total debt service ratios actually end up being the constraining factor,” he said.