Click here to join our mailing list to receive the latest news and updates as they happen. Unsubscribe any time.

Genworth & First National Nuggets

Last week saw two earnings reports of note in the mortgage business:

There are always little treasures in these reports and this time was no exception. Below are some snippets of interest (our comments in italics):

First-NationalFirst National

  • “FN’s $4.3 billion of Q3 Mortgage originations were 29% higher than forecast, despite a 7% y/y decline in housing market activity in Q3,” says National Bank Financial.
  • Mortgage originations jumped 25% YOY
    (First National can thank CIBC for closing the shutters on FirstLine.)
  • The company snatched a massive 6.5 percentage points of market share in brokered mortgages in the first half of this year.
  • Here’s a look at First National’s mortgage spreads over time. These reflect 5-year fixed mortgage rates, less the 5-year Government of Canada bond:
    • Prior to 2008: 1.25%
    • During the credit crisis in 2008: 3.00%
    • June 2011: 1.46%
      (“Between 2009 and mid 2011, spreads gradually tightened as liquidity issues at financial institutions diminished and the competition for mortgages increased,” said the company.)
    • September 2012: 1.80%
      (“With renewed global economic turmoil in 2012, spreads generally have widened again.”)
  • “…The Company sees the low interest rate environment continuing and healthy mortgage spreads for the remainder of the year.”
  • “Canada Housing Trust (CMHC) has indicated that it will not unduly increase the size of its (Canada Mortgage Bond) issuances…” (This is a significant constraint for non-bank lenders competing with the majors.)
  • First National sold 82% of its Q3 mortgage originations to institutional investors, much more than analysts expected.

Genworth-FinancialGenworth MI Canada

  • Its mortgage application volumes are down approximately 15% since the tightening of mortgage rules, said Genworth.
  • “Many potential homeowners appear to be sitting
    on the sidelines watching interest rates and home prices and adopting a wait-and-see approach before buying.”—Brian Hurley, Genworth MI Canada, Inc. – Chairman & CEO
  • “…Over 80% of borrowers we qualify for a 30-year term could qualify for a 25-year term,” says Hurley. (CMHC’s findings are likely similar. This counters those who claim that mostly fringe borrowers take extended amortizations.)
  • Genworth expects the government to raise the cap on insurance-in-force for private mortgage insurers to $300 billion, from $250 billion today. The company hopes that will happen by “early 2013.” RBC Capital markets estimates that private mortgage insurers have, collectively, ~$200 billion in insurance-in-force.
  • Genworth’s delinquency rate has fallen for six quarters in a row to a long-term low of 0.15%.
  • Genworth wrote a more “typical” $11 million in bulk insurance in Q3, versus an abnormal $47 million the prior quarter. (That $47 million occurred from pent-up demand after CMHC started rationing bulk insurance.)

Rob McLister, CMT