Canada’s Financial Consumer Agency says it’s losing money on its mortgage loan portfolio after investors’ pledge to invest more in the sector.
The agency says the investment returns haven’t kept pace with the growth of the sector and the industry is losing money, with investors’ commitments to boost lending falling by around 30 per cent since last year.
A report by the agency on Tuesday found that the number of loans outstanding in Canada has fallen by more than 5.5 per cent to $2.1 trillion in the first six months of 2017, down from $3.9 trillion in 2018.
The report said the industry needs $1.4 trillion more by 2019 to achieve the 2020 target of $4.4 billion in new investment in the industry.
The number of mortgage loans outstanding has fallen dramatically over the last two decades, dropping from 6.1 million in 1992 to 3.6 million in 2016.
Financial Consumer agency says it lost money on mortgage loans portfolio, 2017-18, in 2018-19 compared to the same period in 2017.
(Financial Consumer Agency of Canada) “The mortgage market is now at a critical juncture and the economy is still in a recession,” said Audrey Lefebvre, the agency’s director of mortgage products and services.
“As more Canadians enter the market and invest in their mortgages, the Canadian mortgage market will have to adapt to this reality and will likely experience a decline in loan originations in 2019-20,” Lefefebstre said.
“The Canadian mortgage lending industry is at a crisis point and the need for additional investments and support is very high.”
The Financial Consumer Service, which regulates mortgage lenders in Canada, said it has increased its lending guidelines in the last few years to prevent more people from entering the mortgage market.
But, in a report released last week, the regulator said that while it’s possible that a downturn in the economy and financial markets will drive down the number and volume of loans issued in Canada over the next few years, the industry has already been hit by a number of crises and downturns.
The most recent crisis saw the value of mortgages decline by almost $100 billion, it said.
Lefefe said it’s not yet clear how much of that drop is due to borrowers taking out loans they’ve already paid off, but the agency is keeping a close eye on the industry and is reviewing its lending policies.
The Financial Services Commission of Canada also recently increased its benchmark loan-to-value ratio to 3 per cent.
A few weeks ago, the CRA said it had suspended its $1,000,000 mortgage guarantee program.
But that program had been suspended earlier this year because the Canadian Mortgage and Housing Corporation was trying to boost the industry’s lending rates.
The CRA said in a statement that the agency was working with mortgage lenders to improve the quality of loans and improve the lending environment.
Liefebvre said that although the CRA has no direct control over the amount of money lenders lend to borrowers, she believes the agency has “significant tools to help” mortgage lenders manage the risks they face.
The financial watchdog also said in the report that its staff are also working with borrowers and lenders to understand the types of loan terms and fees they are using to help reduce the risk of default and make them more attractive to potential buyers.
Financial Services Minister Bill Morneau said in Ottawa that he’s concerned about the industry because the housing sector is a very important source of employment in Canada and is a key driver of the economy.
“I believe we need to do more to protect Canadians from the impact of this downturn and ensure the financial stability of our country,” Morneau told reporters.
The minister said he will continue to monitor the situation and “make sure that our government does everything it can to support the industry.”