Brokers could be in for a rude awakening
Although brokers have turned to credit unions in droves since January 1, the expected surge in the latter’s mortgage originations has yet to materialize.
“The market is a little soft across the country,” Dave Schurman, divisional CEO of corporate investments at FirstOntario Credit Union. “Mortgage volumes are definitely down year-over-year, as opposed to last year. You can say it’s B-20; I think it’s probably a combination of things, but regardless of the reasons the market’s down right now. Some people may be choosing not to sell.”
Another reason is that, since the beginning of the year, there are fewer refinances.
“One thing B-20 has done, aside from the stress test, is it’s stopped a lot of refinances,” continued Schurman. “You can refinance with your own institution even if you don’t qualify under the stress test, but you can’t refinance with another institution—you have to requalify. A lot of the mortgage business is refinances, not new sales. A lot of these regulations have slowed down the refinance business.”
In the Greater Toronto Area, home sales were down 39.5% last month compared to a year earlier, according to numbers released by the Toronto Real Estate Board. But with rising interest rates and policymakers scrambling to cool overheated housing markets, perhaps it was to be expected.
“That’s not specific to us, that’s specific to any mortgage lender because there are less sales,” said Schurman. “I don’t know if it’s completely planned by the government when they make rule changes like this, but they were obviously looking to solve some problems, one of which was mounting debt, the other was unaffordability in the GTA and Vancouver area. When that happens, sometimes there are side effects for areas that don’t have unaffordability. They get caught with shrapnel.”
Even though stress testing mortgages is primarily why credit unions were thought to benefit from B-20—they’re not regulated by OSFI—Schurman says they don’t wantonly lend out money simply because they can.
“In our minds, there’s nothing wrong with the stress test. If somebody can’t afford a 2% rate increase, they should probably relook at what they’re doing. We’re not in the business of giving somebody a mortgage they can’t afford if the rates go up,” he said. “Being a member-owned financial institution, we’re in business to do what’s right for our members, and if our members can’t afford something we’re going to work with them to help them understand that. We’re not going to just give somebody money because they want it and then have a foreclosure sign on their lawn two years late because interest rates went up.”
Hearing it from the CEO of the Canadian Credit Union Association, that isn’t surprising. She says credit unions’ are primarily beholden to their members.
“Credit unions are by their nature fairly conservative in their lending,” said Martha Durdin. “They also run up against their caps on capital levels and their purpose is to serve their members, and to help their members achieve their financial goals, so they’re going to look at the opportunities presented to them and if it makes sense for the organization, the borrower, the credit union, they’ll write the mortgage.”
Some credit unions, like Vancouver City Savings and FirstOntario, are developing their own underwriting criteria, so that bump in originations may never come to fruition.
“At some point, we may be regulated by the exact same [OSFI] measures,” said Schurman. “But we still don’t want to be seen as rogue lenders, where if you’re turned down by everybody else you can come to the credit union.”