Q: My Question in short:
Can you quantify the change in size of the alternate mortgage lending market due to the recent mortgage regulations changes in Canada? Can you also comment on the quality of said mortgages given that the regulations have essentially raised the bar on the mortgages that the big 5 will write up?
My Question in long form:
I’d appreciate you input on the change in the alternate lending market and any corrections you wish to add to the information I’ve provided.
From my research, there have been three sets of regulations changes to the financial industry in response to the 2008 financial crisis, the Volker rules, Dodd-Frank and Basel I, II, III. From my understanding, the Volker rules limit proprietary trading/derivatives and are thus irrelevant to this subject. The “Dodd-Frank reform” is a sort of blanket US legislation that is being written SEC and rolled out in pieces, some already in effect, until 2018. I believe it will have a direct effect on mortgage quality regulations in the US, but Canadian banks will be able to place there US operations in subsidiaries and thus Canadian operations will be unaffected.
On the other hand, Basel I, II, III and other OSFI policies will have a direct effect on the Canadian mortgage market in a two-fold fashion;
-Bank capital reserves requirements are more stringent from both a quantitative and qualitative measure.
-Rules regarding who qualifies for mortgage insurance have been elevated.
Benjamin Tal recently commented that these new regulations will raises the bar on who qualifies for a big 5 bank mortgage and thus create a new high quality tranche of mortgage business for alternative lenders such as HCG. Would you agree with that hypothesis? I believe the mortgage market is around 1.2 trillion in Canada; do you have an estimate on the size of this tranche of the market? Are there any other alternative lenders similar to HCG that stand to benefit from the change in the market place?
Thanks in advance for answering my question and also for the great research reports you regularly deliver.
Can you quantify the change in size of the alternate mortgage lending market due to the recent mortgage regulations changes in Canada? Can you also comment on the quality of said mortgages given that the regulations have essentially raised the bar on the mortgages that the big 5 will write up?
My Question in long form:
I’d appreciate you input on the change in the alternate lending market and any corrections you wish to add to the information I’ve provided.
From my research, there have been three sets of regulations changes to the financial industry in response to the 2008 financial crisis, the Volker rules, Dodd-Frank and Basel I, II, III. From my understanding, the Volker rules limit proprietary trading/derivatives and are thus irrelevant to this subject. The “Dodd-Frank reform” is a sort of blanket US legislation that is being written SEC and rolled out in pieces, some already in effect, until 2018. I believe it will have a direct effect on mortgage quality regulations in the US, but Canadian banks will be able to place there US operations in subsidiaries and thus Canadian operations will be unaffected.
On the other hand, Basel I, II, III and other OSFI policies will have a direct effect on the Canadian mortgage market in a two-fold fashion;
-Bank capital reserves requirements are more stringent from both a quantitative and qualitative measure.
-Rules regarding who qualifies for mortgage insurance have been elevated.
Benjamin Tal recently commented that these new regulations will raises the bar on who qualifies for a big 5 bank mortgage and thus create a new high quality tranche of mortgage business for alternative lenders such as HCG. Would you agree with that hypothesis? I believe the mortgage market is around 1.2 trillion in Canada; do you have an estimate on the size of this tranche of the market? Are there any other alternative lenders similar to HCG that stand to benefit from the change in the market place?
Thanks in advance for answering my question and also for the great research reports you regularly deliver.
