Exposure to Mortgage Defaults | General financial discussion | Discussion forum

Alexandre said
It would be wise to limit deposits in each bank by no more than what CDIC insures, at least for some time.  

Remember as well with the $100K CDIC . That amount is principle and interest combined. So make sure no more than $100K in your account including the interest owed.

Bill said
I'd be interested if anyone who follows such things (Doug?) could give us, in order, their list of likely candidates of fi's that are followed on this site that would be most susceptible to failure based on current situation and assuming things continue to deteriorate. Hopefully it doesn't come to it but if I have money to put in a savings account or GIC and my choices are (hypothetical example) Alterna or Peoples I've no idea which one to choose if safety is my driving decider (and assume CDIC doesn't exist).  

christinad said
I was listening to a real estate specialist and he said the companies affected by mortgage defaults are those that secured a mortgage loan in second position as it would harder to get the money from the default. I'm not sure if this affects companies like home trust and equitable bank. I'm interested as i'm thinking its better to spread my money around, and particularly interested in oaken.

Well i suppose oaken is cdic insured so shouldn't worry to much.  

It's a good question, Christina. Thanks for the hat tip, Bill. To answer your question, I'm not sure the Big 5 banks' exposure to second mortgages. I'm not certain it's zero, as I don't think they would do much in the way of second mortgages but, at the same time, in part due to their audited financial statements not really delineating the position of the mortgages they hold, we have no idea what percentage would be held in 1st or 2nd position. So, I can't rule it out. Same story with Home Trust and Equitable Bank.

With Home Trust and Equitable Bank, they do mostly on-balance sheet lending, they also do off-balance sheet lending in which they earn an upfront fee as a percentage of the mortgage sold when they sell it into a CMHC sponsored and federal government guaranteed mortgage pool that it is held, principally, by institutional investors like mutual funds and pension funds, and just recently, by the federal government itself through the Insured Mortgage Purchase Program. So, they maintain only a negligible retained interest when they do sell such mortgages. I doubt second mortgages are eligible for securitization through CMHC sponsored facilities, but that doesn't mean they aren't selling them through private mortgage pools or that they don't hold any second mortgages.

Transparency is scant here, but the main reason to stay within your CDIC limits is that they do tend to have a higher percentage of clients who otherwise wouldn't qualify through the Big 5 banks for 1st position mortgages. Situations like self-employed people or private landlords that invest in rental properties for income. Big 5 banks do this as well, but their criteria is tighter. Also, they also lend on the equity value of the property, which is something the Big 5, to my knowledge, don't do anymore. It's not the majority of their book or anything, so I wouldn't worry too much overall, but just something to be cognizant of. Staying within CDIC limits will be just fine.

Cheers,
Doug

christinad said
I saw this on the financial post

https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/home-capital-to-report-first-quarter-2020-financial-results

So we may hear more about them after may 7th. I guess because as Loonie has said peoples trust is privately owned we won't find anything about them. I'm actually concerned about hubert financial but i don't know how to find out how sunova credit union is doing.  

Peoples Trust, though privately held, actually releases their annual report and selected audited financial statements usually in May.

https://www.peoplestrust.com/en/about-us/annual-report/

Sunova Credit Union, Limited, is the issuer of Hubert Financial deposits. Hubert Financial is effectively a branch transit of Sunova. They don't break out deposits by branch. Hubert has some mortgages for Manitoba residents only. However, under "Resources," see my methodology for how I approximated the 2017 and 2018 deposit breakdown for the Manitoba CUs and their virtual branch transits (https://www.highinterestsavings.ca/forum/general-financial-discussion/financial-review-of-canadian-mid-sized-banks-and-credit-unions/). I will try and update it with 2019 information in May or possibly as late as June, when everyone's annual reports are posted.

In the meantime, you can grab their 2019 financial statements. Loans and mortgages to members grew only modestly, outpaced by the growth in deposits. In short, there is no shortage of demand for their top-tier deposit rates and their absolutely legendary customer service.

https://www.sunovacu.ca/our-story/annual-reports/

Bridgewater Bank, owned by the Alberta Motor Association, is the one I worry about the most. They don't publish audited financial statements of any kind beyond just bare minimum regulatory capital disclosures and limited financial data from the OSFI website. They are also abhorrent in customer and member service; repeatedly being curt, trite, and even downright rude to potential customers and the general public. 🙁

Cheers,
Doug

christinad said
Thanks Doug. That is good to know. I worry about vancity too because i told my dad about their 3% unity term deposit. However hopefully the very fact they have this gic will help them as they must have a lot of small business clients.  

Don't worry too much, Christina. I realize CUDIC B.C. doesn't have a insured deposit limit, but if it makes you comfortable, something like 96-98% of Coast Capital Savings members' deposits, at the time they continued as a federal credit union in November 2018, were under the $100,000 CDIC limit. So, even though they notionally insure all deposits, if it helps you sleep at night, you could just put into practice your adherence of not parking more than $100,000 at any one credit union.

Also, Vancity owns Vancity Community Investment Bank, which no longer has retail deposits (they're getting back into non-profit organization GICs) and Citizens Trust Company, both of which are CDIC members. So, if those institutions were ever in trouble, as Norman has apparently confirmed in a recent thread, OSFI and CDIC have the power to compel Vancity to put up required capital to cover any regulatory deficiencies, or they'd risk OSFI and CDIC seizing and taking control of the subsidiaries. So, in that sense, if there were problems in a subsidiary, that would be a sort of "early warning" signal of problems at Vancity.

The Credit Union Deposit Insurance Corporation of B.C., too, through Stabilization Credit Union has the power to take over direct control of any problematic credit union. So, before it ever came to CUDIC B.C. having to tap its deposit insurance fund, they would've taken steps to either take control of the credit union and right-size it or find another willing buyer, which could include a federally chartered bank.

Vancity is also the largest credit union in Canada, by assets, outside of the Desjardins Group, so if they went down, virtually every other credit union had gone done. 😉

Cheers,
Doug

Interesting research, Doug. It sounds like the purpose of Stabilization Credit Union is precisely to intervene when others are in trouble. Is there something equivalent in Ontario? MB? I had assumed it was a function of DICO in the same way that CDIC will intervene.

Thanks very much for the extra info, Doug. I agree, the deregulation is a bit of a red flag. As I've said elsewhere, we only keep savings accounts in MB (and not much of them, with today's rates), with a very small amount in a couple of GICs which will be moved as they mature.

It's always tempting to get rid of regulation - until the sh*t hits the proverbial fan. Ontario, which now has out-of-control morbidity and mortality COVID rates in several long term care (nursing) homes, eliminated mandatory inspections thereof a year or so ago. Infection control is typically one of the weakest links in institutional care settings at the best of times because it's unglamous and tedious.

Although it used to take months, CDIC now promises compensation within a fairly short period. I've not heard of any deadlines with the others.