Private mortgage insurers have more mortgages in arrears than traditional lenders, and most are uninsured, according to data from Statistics Canada and Better Dwelling.
According to Better Dwelling, non-bank lenders (also known as private mortgage insurers), held 20,224 uninsured mortgages that were in arrears in the first quarter of this year, for a total of $3.78 billion. Of those, 2,359 were in arrears for more than 90 days. In other words, non-bank lenders are waiting on mortgage payments from Canadian homeowners that total $587.77 million.
That’s an arrears rate of 1.84%, Better Dwelling says, which is higher than the national arrears rate, which was 0.23% as of June 2019. (Provincially, Saskatchewan has the highest arrears rate, at 0.86%, and Ontario has the lowest, at 0.09%.)
Things are slightly better for the private industry when it comes to insured mortgages. According to Better Dwelling, private insurers held 13,069 insured mortgages in arrears in Q1 2019, representing $2.48 billion in debt — $315 million of which was over 90 days in arrears.
When looking for a mortgage, Canadians have the option to go with a traditional “A” lender, such as a bank, or with a private lender. Usually, Canadians will go the private route when they don’t qualify for a mortgage from their bank.
Disqualification can happen for a number of reasons, including not meeting the strict requirements of the mortgage stress test or having a poor credit rating.
But mortgages from private lenders are risky and typically come with higher interest rates — some as high as 20% — as well as longer amortization periods. There’s generally no regulation or oversight on how they decide to lend money to people, either.
This has prompted calls from the Ministry of Finance to create a registry in order to get private mortgages’ runaway growth under control and create some regulatory framework. Among the proposal’s suggestions include making it mandatory for private lenders to register with the Financial Services Regulatory Authority of Ontario (FSRA) if their lending is above a particular “monetary” or “activity threshold.” For lenders who fall below that threshold, registering would be voluntary. The registry is also intended as a measure to prevent money laundering in the private mortgage sector.
Still, according to Better Dwelling, the growth of the private mortgage industry is still healthy. Private lenders make up about a fifth of all mortgage debt.