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business leaving residential mortgage space

The Latest in Mortgage News: iA Exits the Residential Mortgage Market

After nearly 50 years of providing residential mortgages to Canadians, Industrial Alliance Financial Group announced its exit from the space this month.

“This is a result of our decision to focus on investments in key sectors for the Group,” iA spokesperson Pierre Picard told CMT. “We will focus exclusively on commercial mortgages. Residential mortgages operations will be phased out gradually.”

The deadline for brokers to submit new applications already passed on Sept. 6, while all documents for deals still in the pipeline must be submitted no later than Oct. 18. Loan applications not completed by then will be cancelled.

Picard confirmed that “clients will have access to customer service until their mortgage matures.”

He added that the decision to leave the residential mortgage space had nothing to do with the stricter regulatory environment following the implementation of Guideline B-20 and its mortgage stress test.

A source familiar with iA’s residential mortgage business said the move came as a surprise, given the business was reportedly still profitable, and also since the company had invested heavily in a new mortgage underwriting platform that launched earlier this year.

iA was at one time one of the most aggressive lenders in the broker channel rates-wise, particularly with its “No Frills” mortgage. However, brokers say the rates became far less competitive over the last year and a half.

The company was also known to be a very niche lender, rarely breaking above 1% of market share.

Aging Canadians Driving Reverse Mortgage Growth

Reverse mortgage growth is soaring in Canada, having jumped another 26%or $778.9 millionsince last summer, according to data from the Office of the Superintendent of Financial Institutions (OSFI).

Total outstanding reverse mortgage debt climbed to $3.74 billion as of June, up 0.6% from May. While reverse mortgages still represent less than 1% of the $1.2 trillion residential mortgages issued by chartered banks, their pace of growth is much higher.

Equitable Bank, one of two lenders offering reverse mortgages in Canada, has seen applications spike, the company’s CEO, Andrew Moor, told BNN Bloomberg this week.

“We’ve only been in this market for 18 months, but applications are jumping,” having tripled in the past year, he said. “Canadians are getting older and there is an opportunity there.”

HELOC Debt at an All-Time High

Outstanding HELOC balances have now topped $300 billion as of June, according to data from OSFI.

The balance reached $302.2 billion, a 0.35% increase from May and a 5.37% jump from a year earlier.

At the same time, HELOC servicing costs are soaring for certain homeowners, particularly those living in Toronto and Vancouver, according to first-quarter data from the Canada Mortgage and Housing Corporation (CMHC).

It found homeowners in Toronto are paying 14.5% more each month ($593) in HELOC payments compared to the previous year. Those in Vancouver have seen their payments increase 12.3% to $667 a monthmore than three times the rise in mortgage servicing costs, which rose 4.85% to $1,881 a month.

Data released earlier this year from the Financial Consumer Agency of Canada pegged the average HELOC balance at approximately $65,000, while one quarter have a balance of more than $150,000. The Agency also sounded the alarm over the fact that more than a quarter of HELOC-holders (27%) are paying the minimum interest amount each month.