After years of sizable growth, there are signals that the second-largest Canadian reverse mortgage provider is slowing down, much like many of its American counterparts.
Toronto-based Equitable Bank — the second-largest provider of reverse mortgages to Canadian seniors — reported that it turned a profit in Q3 2022, but expects business to slow down across all of its channels as it heads into 2023. However, reverse mortgages remain a pronounced area of potential growth, according to a story from Canadian Mortgage Trends.
Per the report, Equitable Bank’s conventional loan growth was slightly off from expectations, at 29% growth compared to the expected 36%.
While President and CEO Andrew Moor said that the company should start off 2023 from “a position of strength,” he also acknowledged that broader economic realities are likely to contribute a slower growth in the new year.
“[W]e certainly [see] houses [being] purchased, there’s always demand as people get into the housing formation stage of their life, [as] children arrive, [as] they need to buy a bigger house with another bedroom and so on,” Moor said. “So really, we’re going to see a little bit of deferred activity in the housing market, and we are anticipating by the end of next year we’ll be back to a more normal cadence.”
When it comes to the company’s reverse mortgage division, the growth potential remains, in spite of broader economic challenges. Reverse mortgage assets grew by nearly 200% year-over-year to $514 million CAD, and 22% quarter-over-quarter, according to the report.
“The fact that our 2023 guidance shows 60% to 80% expansion in the reverse mortgage portfolio simply underscores the tremendous growth potential of this franchise,” Moor said during the company’s Q3 earnings call.
The leading reverse mortgage provider in Canada is HomeEquity Bank, based in Toronto. Last year, HomeEquity Bank announced that it would be acquired by the Ontario Teachers’ Pension Plan Board, which is responsible for administering defined-benefit pensions for school teachers of Ontario, the Canadian province that is home to the city of Toronto.
However, the fast-paced growth of the reverse mortgage business in Canada has attracted regulatory scrutiny. Canada’s Office of the Superintendent of Financial Institutions (OSFI), which reinforces the public’s confidence in the Canadian financial system, publicly pronounced in April that it was going to be keeping a watchful eye on the nation’s growing reverse mortgage business, a point emphasized by one of its representatives to the Financial Post.
“Our message has been quite simply that [these lending products] are important developments in the market, but they can mask the rising credit risks in books,” said OSFI Deputy Superintendent Ben Gully to the Post. “And so, we’ve spent significant time reinforcing those messages over the last couple of years and making sure innovations remain safe and prudent and that our firms that we supervise understand the risks.”
In January, HomeEquity Bank announced that it had surpassed $1 billion CAD (roughly $792.5 million USD at the time) in originations for the first time.
While the Canadian reverse mortgage business has largely been dominated by HomeEquity Bank and Equitable Bank for the past several years, a new company, Toronto-based fintech firm Bloom Finance Company, Ltd., entered the business in late 2021.
This past summer, a report from DBRS Morningstar detailed that the explosive growth observed in the Canadian reverse mortgage market comes with commensurately increasing home prices, but the market is also subject to risk for product providers.
Read the Canadian Mortgage Trends story on Equitable Bank’s Q3 results.