Moody's: Brokers, you were right

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A report from Moody’s is vindicating brokers by pointing out unsecured debt – and not secured mortgages – poses the real threat to RBC and other Canadian banks.

"It's an uncertain world that we're living in,” said author David Beattie, VP and senior analyst at Moody's Investor Services in Toronto. “The macro environment is unclear as to what negative shocks may occur, and the banks that have positioned themselves a bit more aggressively against an increasingly leveraged Canadian consumer could run into problems in the event that we have some adverse economic developments."

To be perfectly clear: that possible bump in the road is unsecured debt, says the report.

RBC, for one, had the highest exposure to all types of uninsured consumer debt among the Big Six at the end of its fiscal 2010 – some 24 per cent of its total managed assets. Scotiabank’s accounted for 21 per cent of its overall assets and CIBC’s exposure stood at 20 per cent.

Those levels are coming dangerously close to the 30 per cent of total managed assets Moody’s says would negatively impact their ratings.

The analysis jives with that of brokers who argue the government’s focus on tightening up mortgage rules has been misplaced, leaving the country exposed the more-urgent problems associated with easy access to credit card debt.

“What may have been more effective as for the government to place limits on credit card interest and force the credit card companies (and banks) to do better underwriting to minimize default,” said Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C., this summer.

The worrying level of debt at the big banks includes uninsured mortgages as well as personal lines of credit.

Moody’s and, indeed, brokers, will get a close look at that exposure later this week when the first of the big guys share their fourth-quarter earnings.


  • Kevin J Power, President Power Mortgages Inc. on 2011-12-02 6:35:21 AM

    I fully agree with this assessment and I have actually made the same claim for a number of years. We don't have a mortgage problem in Canada, we have a consumer debt problem. Primarily this is caused by the banks building their book of business, by offer revolving debt products, combined with interest only payments or minimum payments and no debt retirement strategies.

  • Hal on 2011-12-02 7:01:42 AM

    "RBC, for one, had the highest exposure to all types of uninsured consumer debt among the Big Six at the end of its fiscal 2010 – some 24 per cent of its total managed assets."

    I wouldn't call "uninsured mortgages" consumer debt. RBC has only 11% (not 24% as reported in the above article) non mortgage consumer debt. The other 13% is actually the percentage of uninsured mortgages that they have on the books.

    Uninsured mortgages are among the most solidly backed loans that the banks have.

    See the report and graphs at:

    I'm not disagreeing with the premise of the article. However, the extent of the problem is not as large as what seems to be reported.

  • David O'Gorman, Principal Broker, MortgageLand Inc on 2011-12-02 7:45:29 AM

    I agree with Kevin 100%, and I will take it a step further.
    I am sure the banks recognized their risks during the last three years of government imposed "stress tests" on all asset portfolios.Which you can be sure lead to some analysis of how "the boys" could cover their collective tushs,& keep those promotions & bonuses coming.

    RBC & BNS were in the lead of pushing collateral mortgages on their clients, with TD running fast to catch-up. And who does Moddy's suggest has the highest exposure to unsecured debt?

    Is there a better way of securing unsecured LoCs, unjustified credit card limits, leg loans(sorry ladies, but they did happen)& other assorted loans that "scored" but had little or no real security behind them, than tying the consumer up in a collateral mortgage?

    So the banks are now taking advantage of the consumer by "forcing" collateral mortgages on them, thereby shoring up the bank's security...and where are our elected representatives, highly paid government officials & consumer advocates? As usual, not to be seen or heard.

    Grampa always said the first rule in Canadian banking is, "banks don't lose"...the second rule was "memorize the first rule".

  • Rod on 2011-12-02 8:31:24 AM

    In response to Hal, a lot of these mortgages that are uninsured are not as good as you might assume, as they were refinanced to the 80% limit based on gvs evaluations not appraisals. Also in a lot of cases income has been waived as well to get the deal approved. I have 3 very good friends that are underwriters with the big 5 and I cannot believe some of the crap being done and they cannot either. I have lost files to RBC where the client finished credit counseling and they used auto appraisal and gave him a line right up to the 80%. Had not completed the counseling for more then 2 months and no re-established credit.

  • Ad Lakhanpal, Broker, Mortgage Alliance on 2011-12-02 1:04:04 PM

    I agree with Kevin Power that we have a consumer debt problem and not a mortgage problem. It has been made worse by changes in the mortgage rules for refinancing from 95% to 85% LTV. A consumer could draw on equity at say 3% and retire credit card debt which could be at 19%. Yes, some people use their equity as an ATM, for non essential expenses, and perhaps it should be controlled. However, drawing on equity to pay down more expensive debt should be allowed. It can save many people from seeking Proposals, Bankruptcy or having to sell their houses to solve debt issues.

  • Keith on 2011-12-02 5:36:16 PM

    What I want to know is... Where is CAAMP? As the supposed voice of the mortgage industry why we they not on this a long time ago? Its not new. Instead they bend over, call for tighter mortgage regulations to the detriment of the mortgage industry, and then launch an underhanded forced membership drive? Can someone remind me again... What was CAAMPs role again? Was it to defend our industry, or to provide kickbacks to companies that do forced membership?

  • Brian on 2011-12-02 5:39:43 PM

    Ummm... I was at the BC investors forum a month ago and I heard Paul from Centum speak on this very topic. He was pretty clear that unsecured credit was the real issue, and that all the statistics backed that up. I started paying attention then, and I appreciated his very insightful thoughts about the credit environment.

  • Cathy on 2011-12-02 5:43:48 PM

    Keith i agree with you... This is just more proof... CAAMP and the executive there are not doing their jobs and not representing our industry the way they should be. They rolled over without a fight at the tightening of mortgage lending, but never made a peep to address the real issue. The voice of our industry? I think not.

  • Bruce Smith on 2011-12-06 8:25:51 AM

    I recall addressing this issue nearly one year ago. I was against the tightening of mortgage rules and blogged about the topic back on January 17, 2011. Glad others are beginning to clue in as to the real financial problem facing Canadians. Moody’s has yet to offer me a job but I will keep you posted.

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