Experts have warned about the end of mortgage payment deferrals for months. Now, those deferral end-dates are right around the corner.
The head of the Canada Mortgage and Housing Corporation went so far as to refer to their end as the “deferral cliff.” That name has stuck.
The deferral cliff is what some expect to happen when those who remain unemployed have to find ways to make their mortgage payments.
Payment deferrals, you might recall, were offered by most of Canada’s prime mortgage lenders at the height of the pandemic. They’re the #1 reason mortgage foreclosures aren’t soaring right now.
Most big banks extended deferrals until the end of September. Thereafter, things are somewhat up in the air.
At the time CMHC CEO Evan Siddall coined the term, he suggested up to one-fifth of mortgages could fall into arrears if deferrals ended and the economy remained depressed.
But, with Canada’s economic recovery seemingly well underway—at least for the time being—and with mortgage payment deferrals scheduled to end in less than two months, the question remains: is there still cause for concern?
The Quick Answer
Thankfully, the deferral cliff appears to be turning into something far less steep and ominous. It may be more of a deferral dip than a cliff.
The second-quarter earnings results from key mortgage lenders offered insight into this – specifically into how mortgage deferrals have evolved since March.
Some quick highlights:
From Non-Prime Lender, Equitable Bank
- At the peak (end of May), 20% of Equitable Bank’s loan balances were being deferred.
- As of July 17, just 6% of the lender’s portfolio is still part of a deferral plan.
- “Our general feeling is that many of our customers called looking for a deferral just out of an abundance of caution in an uncertain economic scenario,” said Equitable President and CEO Andrew Moor.
- “Our early efforts to transition our customers from a period of mortgage deferral back to their regular payments are showing very positive results,” he added.
From Non-Prime Lender, Home Trust
- As of April 30: Home Trust had 9,000+ loan deferrals in place totalling nearly $4 billion in assets representing 23% of the lender’s loan portfolio.
- As of July 31: That fell to 3,000 loans in deferral, totalling less than $1.4 billion and representing 7.5% of Home’s loan portfolio.
- “…We expect to continue to see a decline in the deferrals,” said Yousry Bissada, President and CEO of Home Trust.
- Home Trust offered two-month deferrals, with the possibility of extension after the borrower discussed their situation with a Home Trust advisor.
From Canada’s Biggest Non-bank Lender, First National
- As of May: First National approved 33,800 single-family borrowers, or 13.9% of eligible clients, for its deferral program.
- As of mid-July: That figure has fallen to 10,473 borrowers, representing 4.2% of First National’s portfolio.
- About a quarter of borrowers granted initial deferral are now requesting an extension.
- First National offered three-month deferrals, with extensions granted in cases of “extended hardship.”
From Canada’s Largest Private Default Insurer, Genworth Canada
- Mortgage deferrals peaked in the high teens in the second quarter, Genworth reported.
- As of the end of June: That figure dropped to 13.7%.
- “Provided the current economic trends continue, we expect the level of reported mortgage deferrals to decline over the second half of the year,” said President and CEO Stuart Levings.
CMHC Eyeing New Tools to Help Homeowners
Despite progress to date in getting mortgage deferrers back to paying their mortgages, CMHC announced it is exploring ways to better assist those still experiencing work loss or reduced hours.
“As the end of the initial six-month deferral period from the beginning of the pandemic approaches, we recognize the need to continue to monitor this diligently and potentially develop new tools with our partners to help Canadians during this unprecedented pandemic,” CMHC told The Financial Post.
A recent survey conducted by the Canadian Credit Union Association found that nearly 80% of its members support an “expansion” of programs to assist homeowners who are still struggling.
Among the ideas floated: extending amortization periods, introducing special payment arrangements, and continuing to add missed payments to one’s mortgage balance.
Most likely, the majority of lenders will continue showing compassion for the remainder of this year. As for 2021, expect lenders to become more rigid with those who aren’t paying on time. We’re going to go from “No payment? No Problem” to “No payment? Problem.”
Fortunately, a material number of deferrers have voluntarily chosen to not pay their mortgage, even though they still could if they wanted to.
For that reason, and because of the surprisingly robust housing market, when mortgage delinquencies and forced sales surge next year it’ll be far less pronounced than some feared.