Earnings results from alternative mortgage providers including Home Capital Group Inc. and EQB Inc. show that lenders are turning more cautious on Canada’s rapidly-cooling housing market and the economy.
“The provisions for credit losses generally came in a little bit higher than what was expected,” Gloyn said of the mortgage lenders’ results. Some of that is due to loan growth, he said, but it’s also because of changes in the economic models that Canadian lenders use to estimate expected credit losses.
Canada’s six largest banks begin reporting their results for the quarter ended July 31 on Tuesday, and analysts are expecting them to take larger provisions for credit losses than in the previous quarter as the outlook worsens for the economy. But that doesn’t make them immune to potential stresses. About 64 per cent of Home Capital’s borrowers will need to renew their mortgage within 12 months, and some could face payment increases of as much as CUS$850 a month, stressing their ability to pay, Gloyn estimated in a note in July. EQB would likely have “roughly similar outcomes” in its Alt-A segment though the company doesn’t provide the disclosures needed to conduct that analysis, he said.
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