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Wednesday, August 2nd, 2017

CMHC changes may benefit alternative mortgage lenders

Canadian Western Bank branch in Calgary, Alberta June 9, 2009. Alternative mortgage lenders to the country's big six banks may benefit from new CMHC restrictions

Canadian Western Bank branch in Calgary, Alberta June 9, 2009. Alternative mortgage lenders to the country’s big six banks may benefit from new CMHC restrictions

Mortgage companies competing against Canada’s big six banks offer an increasingly attractive opportunity for investors in the wake of new regulations governing Canada Mortgage Housing Corp., says Stephen Boland, analyst at GMP Securities.

“We believe that the increased lending restrictions on the use of the CMHC will provide the alternative mortgage lenders with additional product which will help them continue to grow their loan books,” Mr. Boland said in a note to clients.

Changes to mortgage lending rules include CMHC now being regulated by the Office of the Superintendent of Financial Institutions (OSFI). In addition, covered bonds using CMHC insured mortgages are now being prohibited.

Mr. Boland noted that increased restrictions on lending including strict home equity line of credit guidelines have also been recently enacted, while many bigger financial institutions are exiting the mortgage broker and non-prime mortgage business.

All put together the country’s changed lending landscape favours Home Capital Group Inc., Equitable Group Inc. and Canadian Western Bank, the analyst said.

All three names are rated buy with Home Capital remaining Mr. Boland’s top pick given its industry leading return on equity.

“We believe that certain borrowers may not qualify for lending at the large financial institutions due to new restrictive constraints and alternative mortgage businesses will likely benefit at the margin,” he said.

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