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The regulatory and financial landscape for Canada’s housing market is undergoing major changes. Analysts at M Partners say those changes stand to benefit the country’s alternative mortgage lenders.
On Thursday, the federal government announced it was shortening the maximum mortgage amortization period to 25 years from 30 years, and lowering the amount homeowners can borrow against their house to 80 percent from 85 percent, among other measures.
Shortly after the federal government made its changes, the country’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), announced stiffer rules for mortgage underwriting by the major banks. OSFI also reduced the maximum amount of home equity loans to 65 percent of the value of a home.
The announcements comes after CIBC said earlier this week it was closing its broker channel lender FirstLine Mortgages after it failed to receive an acceptable offer. CIBC follows both Royal Bank and Bank of Montreal as major Canadian banks that moved away from the business of selling mortgages through brokers.
“FirstLine has seen its market share of the mortgage broker channel decrease from 17.7 percent in the first quarter of 2011 to 7.8 percent in the first quarter of 2012,” Adam Seanor, an analyst at M Partners, said in a note to clients. “We believe this creates a tremendous opportunity for other lenders as it removes a very strong competitor from the playing field.”
Analysts at M Partners say in Canada the broker channel accounts for about 31 percent of new mortgages and 22 percent of renewals.
The companies most likely to benefit, Seanor says, are Home Capital Group (HCG-T), Equitable Group (ETC-T), Counsel Corporation (CXS-T) and Equity Financial Holdings (EQI-T).
“These steps to cool the Canadian housing market should expand the pool of available borrowers for the alternative lenders and we do not expect any material downturn in the housing market,” Seanor says.