First National’s President and CEO Jason Ellis joined other Canadian mortgage lending leaders at the National Mortgage Conference in Montreal on October 27, 2024 to discuss the state of the market in a declining interest rate environment, recent legislative changes and the outlook for 2025. Here is a recap of Jason’s comments.
With monetary policy loosening, there will be an opportunity for borrowers to step back into the market in 2025 with some enthusiasm. However, rates moving lower does not make mortgages any less complicated. The evolving and complex landscape of the mortgage regulatory environment makes the knowledge, wisdom and advice that mortgage brokers can deliver, more valuable than ever.
It’s worth reminding borrowers during this period of Bank of Canada rate cuts that it is not always the best decision to chase the lowest payment. As changes to BoC monetary policy deliver reduction in the Prime Rate and adjustable-rate mortgages, brokers and borrowers alike need to consider their circumstances and give reasonable consideration to the stability of a 5-year fixed rate mortgage.
While the recent increase in the cap for a CMHC high-ratio insured mortgage is a positive development especially for borrowers in the GTA and GVA, it will take significant income to meet the debt service requirements associated with purchases above $1 million. It also bears noting that at the margin, the higher cap may have the unintended consequence of inflating home prices around the $1 million price point. Notably absent from the policy change was the ability to insure conventional purchases on properties above $1 million. The expanded cap applies to high ratio purchases only.
One policy change that would be welcomed is an increase to the cap on NHA-Mortgage-Backed Securities. There is a perception that the creation of NHA-MBS transfers housing risk to Canadian taxpayers. In fact, NHA-MBS pools are made up of insured mortgages and premiums were already paid against the related credit risk. Converting insured mortgages into NHA-MBS creates liquidity for the housing market and generates additional premiums against risk already underwritten. The utility of that liquidity to the financial system in time of stress was proven during the financial crisis and again at the start of the pandemic.
The recent increase in the Canada Mortgage Bond program and the presence of programs like CMHC’s MLI Select program have had a positive impact on the construction of multi-unit residential housing across Canada. Of the various housing initiatives introduced in recent years, the programs administered at CMHC to promote the construction of new rental housing combined with dedicated funding in an expanded CMB program have had the most tangible impact on creating new housing supply.
Allowing all insured mortgage holders to switch lenders at renewal without another mortgage stress test will likely have a limited impact. In practice, the combination of higher household income and higher housing prices over the last five years have allowed most conventional borrowers to move to new lenders even if qualification was required. Nonetheless, the change is welcome news for the market and ensures all borrowers will have equal and fair access to the market at renewal.
B-20 underwriting standards in the Prime space make our Alt-A mortgage program more attractive to First National. The introduction and continued evolution of B-20 guidelines has resulted in a market of ‘previously prime’ borrowers becoming the addressable market for programs like Excalibur. The result is an Alt-A book with higher credit metrics than ever before. Strategically, Excalibur is a great complement to our product range, continues to be a source of growth, and another way to engage with brokers and their borrowers.
The best way First National can help you help your clients is to know your client’s full story. The more you know, and therefore the more information you submit, the faster we can get to a good decision. Submitting mortgage pre-approvals in a timely fashion will also help us help you.
Competition intensified in 2024. The return of a large lender to the broker channel and a more aggressive stance by bank branches outside the channel to capture mortgage business created a uniquely challenging environment this year. However, competition is a fact of life that we must adapt to, and we are.