First National’s latest quarterly results are confirming what brokers across the country already know, with the major mono-line reporting a 6-per-cent decline in mortgage originations from the year-ago period.
"The prolonged economic uncertainty continues to affect the housing market," said Moray Tawse, VP of mortgage investments for First National, in a press release announcing Q2 financials. "In addition, there are a numbers of other factors, including the transition to IFRS and the new capital regulations for federally regulated banks and trust companies that are likely to have an impact on the mortgage industry. The company believes it is well-positioned to take on these challenges and take advantage of new business opportunities as they emerge."
While in the second quarter the company celebrated its fifth anniversary as a public entity, first listed on the TSX in June 2006, it also saw single-family mortgage originations slide 6 per cent in those three months ending June 30, 2011, from $2.6 billion to $2.4 billion.
A similar slowing was recorded in the commercial segment, as volumes decreased by 8 per cent from $616 million to $569 million. Overall, second quarter 2011 origination volumes decreased from $3.2 billion to $3.0 billion, or 6 per cent, from the comparative 2010 quarter. Mortgages under administration were nonetheless up 11 per cent year-over-year to $56.0 billion.
First National, in fact, remains bullish on prospects for the Canadian single-family real estate market, calling it “steady despite continued economic concerns and government activity to slow down growing consumer debt.”
Like all lenders, both in and outside the broker channel, it is also grappling with new accounting rules, IFRS, which require securitized insured mortgages to be brought back onto its balance sheet.
Under IFRS, securitized mortgages no longer represent a "true sale" and instead are accounted for as a secured financing. First National has now restated its comparative 2010 financial statements as if IFRS accounting standards had been applied for the past six years. Additionally, it has restated income under IFRS for the second quarter of 2010. Generally, this quarter featured large volumes of securitized mortgages and, the resulting revenues have now been reversed and replaced with the net interest margin from previously recorded securitization transactions, according to the financial report.
Brokers are still waiting to see how the big banks will deal with those new accounting rules and whether it will ultimately encourage them to drive up interest rates in order to compensate for the higher reserve fund requirements associated with bring securitized mortgages back on balance sheet.