Street Capital, the third largest broker channel lender by market share, has a new way to fund its mortgages. It’s now an approved issuer of National Housing Act mortgage backed securities (“NHA MBS”) and an approved seller under the Canada Mortgage Bond (CMB) program. (Press Release)
This new status puts Street Capital in an exclusive club when it comes to non-bank mortgage lenders—a club that includes First National, MCAP and CMLS.
In terms of how this will impact brokers and consumers, the company says the approval will not materially affect its rates or products. What it will do is add additional mortgage funding capacity.
To date, however, funding hasn’t been Street’s constraint. Due to explosive growth, its bottleneck has been underwriting capacity. This is likely a short-term issue however, one that management has worked to address through hiring and by opening a new Calgary underwriting centre.
On the topic of securitization, our sense is that Street will start selling mortgages into the CMB program later this year, assuming they meet the capital requirements (that won’t be a roadblock, from what we hear). The basic capital requirement is 2% ($20 million) for every $1 billion in MBS issued.
Other than improving access to funding (liquidity), the main benefit of the CMB program is cost. It’s among the cheapest ways to fund mortgages.
The improvement to Street’s overall funding costs (cost per mortgage) will likely be incremental, however, since Street uses—and will continue to use—other funding methods. That said, when it comes to profitability, mortgages are a “penny” (i.e., basis point) business. When you factor in leverage—where a small amount of capital funds a large amount of mortgages—every little cost reduction is magnified in its importance.
Judging from the run-up in its parent’s (Counsel Corp.’s) stock price, the market likes this news. But even before this announcement, Street Capital’s growth trend has been garnering notice on Bay Street.
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At 12.9% broker share in Q1 (according to Davis+Henderson), Street Capital was only 30 basis points shy of First National for the #2 ranking behind Scotiabank. And in the first quarter, Street Capital hit $1.6 billion in originations. That’s a remarkable achievement for a young company in such a competitive marketplace.