Canadian Banks Suspend Payments of 10% of Mortgage Loans While Responding to 500,000 Deferral Requests

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Canadian banks have already received almost half a million requests from borrowers to defer or skip mortgage payments in just over two weeks, amidst rapid financial uncertainty caused by the coronavirus pandemic.

The Canadian Bankers Association said Friday that nearly 500,000 requests have been processed or are being processed since lenders announced last month that they would offer financial relief, such as up to six months of deferred payments home loans.

Borrowers quickly attempted to accept the banks’ offer, flooding their phone lines with thousands of calls for help or information. The CBA said Canada’s six largest banks have already delayed payments on more than 10% of the mortgages in their portfolios.

“The large number of clients who have been helped continues to grow as a result of the concerted efforts of frontline workers, contact center agents and operational teams who work diligently,” the ABC said in a press release.

By combining requests for deferrals with reports of a slowdown in real estate activity and massive layoffs in the Canadian economy, the negative economic effects of the coronavirus are becoming clear. The restaurant industry alone has lost about 800,000 jobs due to COVID-19, according to Restaurants Canada, while workers in the aviation and petroleum industries have also been hit hard.

Toronto-Dominion Bank chief executive Bharat Masrani said Thursday that the lender has approved 60,000 carryover requests to date, representing “almost all” of the requests.

Asked about his confidence in borrowers who can resume paying off their mortgages at the end of the postponement period, Masrani noted “unprecedented” levels of government support and recent talk of the crisis easing in a matter of months.

“And if that’s the case, I think the support provided should provide some flexibility to Canadians who have adopted the deferral program,” Masrani told reporters following the bank’s annual shareholders’ meeting, which practically stood due to the coronavirus. “I expect that if it goes on for a longer period of time, governments will act.”

The overall conclusion is that Canadian banks are well positioned to weather the coming storm

Steve Theriault, analyst at Eight Capital

In the meantime, some borrowers are seeing more cash flow coming their way. The CBA said in its press release, citing the Canada Mortgage and Housing Corporation, that the average monthly mortgage payment for a Canadian homeowner was $ 1,326. In other words, about $ 663 million in cash per month could be released through deferrals, which borrowers could spend on other necessities.

“This number will increase in the coming weeks,” said the ABC.

As mortgage payments are pushed back, the Canadian housing market is also starting to show signs of a slowdown related to COVID-19. The Toronto Regional Real Estate Board announced Friday that the first 14 days of March saw a 49% increase in year-over-year sales to 4,643, but sales for the rest of the month decreased by 15 .9% compared to a year ago. , at 3,369. Total sales for Toronto for the month were 8,012, an increase of 12.3% from March 2019.

“The overall sales result for March was solid compared to last year, but the impact of COVID-19 was certainly evident in the number of sales reported in the second half of March,” said TREB President, Michael Collins, in a press release.

The Real Estate Board of Greater Vancouver reported similar findings that “steady demand from home buyers is expected to start in March and stabilization of activity during the month and concerns about the COVID-19 epidemic have increased intensified ”.

Slowing demand in the housing market would be another headwind for the lending industry, but the consensus remains that Canadian banks are up to the challenge.

Eight Capital analyst Steve Theriault recently wrote that he has reviewed “the worst-case scenario for credit losses and the direct impact on profits, capital and dividends” for large Canadian banks.

“The general conclusion is that Canadian banks are well positioned to weather the coming storm,” Theriault writes in a report. “We will not pretend to have a complete vision of the tensions which will undoubtedly weigh on the banking results in 2020 and 2021; However, we believe that the group as a whole is well positioned from an equity standpoint and that dividends will remain secure and that capital increases will be unlikely. “

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