Arab Canada News – News for the Arab Community in Canada
Published:
March 12, 2024
Equitable Bank witnessed its mortgage arrears rate triple over the past 12 months after most of its clients renewed at higher interest rates.
The alternative mortgage lender reported that 0.54% of its residential mortgage portfolio was in arrears as of the first quarter, up from 0.25% two quarters ago and 0.18% in Q1 2023.
It stated that the rise in unpaid payments is due to 85% of uninsured residential mortgage clients having already renewed their terms at higher interest rates, as alternative mortgages typically have shorter terms of one or two years.
However, the bank said the fact that most of its mortgage loans have already been renewed at higher rates demonstrates borrower resilience, and it expects arrears to be moderate in upcoming quarters.
The President and CEO Andrew Moor said during the bank’s Q1 earnings review: “The fact that most of our clients have already been repriced [mortgage] and are facing an interest rate shock is somewhat proof of how resilient this group is.” “I think I would be concerned if I saw this kind of [arrears] with repricing that has not yet happened.”
Mortgage Losses Expected to be Minimal
Moor also highlighted specific client groups facing the greatest challenges in keeping up with their payments, saying most are clients with larger homes and larger mortgages.
He said: “So, when you think about a bigger home with a self-employed borrower, you should know that their business could be somewhat affected by the [economic] conditions in addition to that payment shock.”
However, most of these loans have significant equity, with the average loan-to-value ratio at only 64%. Moor noted that less than 10% of the portfolio has a loan-to-value ratio above 90%.
But the good news from our perspective is that these loans tend to completely reduce the maximum value, saying “We are fairly confident that the recovery will be very good, so we do not expect many realized losses over the next two quarters.”
Expectations of Declining Delinquency Cases
The bank also said it remains confident that delinquency cases will start to moderate and trend downward throughout the year.
Chadwick Westlick, the CFO, explained: “Recent indicators in Q2 so far show that early delinquency is trending towards moderation, and with the housing market activity rebounding, we expect delinquencies and arrears to continue on a positive path, especially in the second half of 2024.”
He added: “We have begun to see our resolution strategies mature and loan resolutions.” “Based on historical scenarios and stress test scenarios for losses, we believe we are quite appropriately conservative.”
Highlights from the Q1 Earnings Report
Net Income (adjusted) $108 million (+17% year-over-year)
Adjusted Earnings Per Share $2.76 (+12%)
Assets Under Management $119 billion (+16%)
Alternative Single-Family Portfolio $30.2 billion (+4%)
Insured Multi-Unit Portfolio $20 billion
Net Interest Margin 2.01% (+1 basis point)
Net Low-Value Loans (Residential loans) 0.54% (compared to 0.18% in Q1 2023)
Reverse Mortgage Loan Portfolio $1.6 billion (+55%)
Bank’s Average Durable Loan-to-Value of Uninsured Residential Portfolio 64%
Credit Loss Provisions (PCLs) $15.5 million.
Leave a comment