Barbara Shecter, Financial Post
Pressure on Canada’s big banks from Ottawa and the Bank of Canada to tighten mortgage lending practices is benefiting the country’s alternative lenders.
One of those, Equitable Trust, has even been able to realize its goal of coast-to-coast mortgage lending. On Thursday, Equitable ventured into Nova Scotia with plans to provide single-family residential mortgages.
“They are filling the void left by the Big Six banks,” said Shubha Khan, an analyst at National Bank Financial. He said the country’s largest lenders have “reduced lending to self-employed borrowers and lending through the mortgage broker channel due to reduced availability of mortgage insurance from CMHC and increased regulatory scrutiny from OSFI, among other things.”
Ottawa has taken a number of steps this year to slow what it believes is an overheated housing market. In April, the federal government made the Canada Mortgage and Housing Corp., a key component of Canada’s mortgage market, subject to direct regulatory oversight by the Office of the Superintendent of Financial Institutions.
OSFI itself proposed major changes to the way banks handle mortgages and other real estate debt to reduce the fallout of what some fear is a looming housing bubble. Following consultation with the industry, OSFI softened some of those proposals.
On Thursday, the Bank of Canada warned that the country’s heavily indebted households are at risk of “shocks” from the growing economic crisis in Europe.
In its semi-annual review, Canada’s central bank said the two biggest domestic risks are the housing market and high household debt loads.
Alternative lenders such as Equitable and Home Capital Group are poised to continue to benefit as the banks tighten underwriting rules at the behest of policy-makers and regulators, said Stephen Boland, an analyst at GMP Securities.
Tightening of income and credit screening at the big banks will mean more business for the alternative lenders, he said.
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