Mortgage default rates in Canada remain low but are beginning to rise, according to a report from the Canada Mortgage and Housing Corporation (CMHC). Blacklock's Reporter says the federal insurer noted a total of $2.16 trillion in mortgage loans nationwide.“Under current interest rate conditions, more mortgage holders find themselves in precarious financial situations,” stated the CMHC report. “The financial buffer they were able to build up during the pandemic has been exhausted.”The Residential Mortgage Industry Report indicated that mortgage delinquency rates increased from historically low levels during the last quarter of 2023, as consumers’ financial stress begins to impact the mortgage market. Analysts observed a decline in new home loans, with a year-over-year increase of only 3.4%, marking the "softest growth in nearly 23 years," alongside a rise in defaults.“For the first time since the beginning of the pandemic, mortgage delinquency rates began to rise at the end of 2023, reaching 0.2% in the fourth quarter,” the report highlighted. “Our main findings are that the risk in the mortgage market has likely more than doubled,” it added. “Increasing the amortization schedule from 30 to 40 years would likely have little effect on reducing that risk.”The report estimated that 4% of low-cost mortgage owners would struggle to meet payments and afford groceries when renewing loans at higher interest rates. A return to pre-pandemic jobless rates would result in "more than 8% of homeowners with mortgages unable to keep making their mortgage payments and afford their life essentials," analysts wrote.This report follows a March 11 directive from Canada’s chief bank inspector, Peter Routledge, who instructed lending institutions to begin the orderly settlement of risky loans “effective immediately.” Routledge, Superintendent of Financial Institutions, identified mortgage failures as a key risk.“These risks can lead to more defaults and are particularly acute for borrowers with higher risk mortgage products such as variable rate mortgages with fixed payments,” Routledge noted in a Regulatory Notice. “Residential mortgage underwriting also faces the risk of fraud and misrepresentation. If not managed responsibly, this risk could lead to unexpectedly elevated credit losses.”Bankers have been ordered to “proactively identify and address vulnerable accounts” and to “begin testing to estimate potential losses.” While Routledge did not specify the value of loans at risk, he previously pointed to $369 billion worth of variable rate, fixed payment home loans as particularly concerning.Canada has not experienced a bank failure since the 1985 collapse of two Alberta institutions, Canadian Commercial and Northland Banks. Two other banks at risk, the Bank of British Columbia and Continental Bank, merged with larger rivals.
Mortgage default rates in Canada remain low but are beginning to rise, according to a report from the Canada Mortgage and Housing Corporation (CMHC). Blacklock's Reporter says the federal insurer noted a total of $2.16 trillion in mortgage loans nationwide.“Under current interest rate conditions, more mortgage holders find themselves in precarious financial situations,” stated the CMHC report. “The financial buffer they were able to build up during the pandemic has been exhausted.”The Residential Mortgage Industry Report indicated that mortgage delinquency rates increased from historically low levels during the last quarter of 2023, as consumers’ financial stress begins to impact the mortgage market. Analysts observed a decline in new home loans, with a year-over-year increase of only 3.4%, marking the "softest growth in nearly 23 years," alongside a rise in defaults.“For the first time since the beginning of the pandemic, mortgage delinquency rates began to rise at the end of 2023, reaching 0.2% in the fourth quarter,” the report highlighted. “Our main findings are that the risk in the mortgage market has likely more than doubled,” it added. “Increasing the amortization schedule from 30 to 40 years would likely have little effect on reducing that risk.”The report estimated that 4% of low-cost mortgage owners would struggle to meet payments and afford groceries when renewing loans at higher interest rates. A return to pre-pandemic jobless rates would result in "more than 8% of homeowners with mortgages unable to keep making their mortgage payments and afford their life essentials," analysts wrote.This report follows a March 11 directive from Canada’s chief bank inspector, Peter Routledge, who instructed lending institutions to begin the orderly settlement of risky loans “effective immediately.” Routledge, Superintendent of Financial Institutions, identified mortgage failures as a key risk.“These risks can lead to more defaults and are particularly acute for borrowers with higher risk mortgage products such as variable rate mortgages with fixed payments,” Routledge noted in a Regulatory Notice. “Residential mortgage underwriting also faces the risk of fraud and misrepresentation. If not managed responsibly, this risk could lead to unexpectedly elevated credit losses.”Bankers have been ordered to “proactively identify and address vulnerable accounts” and to “begin testing to estimate potential losses.” While Routledge did not specify the value of loans at risk, he previously pointed to $369 billion worth of variable rate, fixed payment home loans as particularly concerning.Canada has not experienced a bank failure since the 1985 collapse of two Alberta institutions, Canadian Commercial and Northland Banks. Two other banks at risk, the Bank of British Columbia and Continental Bank, merged with larger rivals.
