Non-regulated and private mortgage lenders are not subject to the same Canadian mortgage stress test rules as federally-regulated lenders, but that doesn’t mean their portfolios do not ever need to be assessed.
Lender due diligence is an ongoing process and, in fact, now may be the perfect time to stress test your own portfolio – whether you are required to or not.
The April 2019 Teranet-National Bank House Price Index revealed that the composite index stayed flat — the eighth consecutive month without a rise.
However, National Bank Senior Economist Marc Pinsonneault wrote that “while the Composite Teranet-National Bank HPI dropped again in April, there are signs of stabilization.”
“April’s decline in the Composite index is the smallest in months,” Pinsonneault wrote in a report.
“The cumulative decline over this seven-month stretch is only 1.8%, a moderate loss compared to the 2008-2009 recession, and even compared to shorter sequences of drops that occurred since then…”
With this shift, now may be the perfect time to consider assessing your mortgage portfolio.
While some think of mortgage underwriting stress testing as an excessive requirement, it is something that lenders of any size should look at from time to time. This is especially true when there are changes and/or uncertainty in the real estate market.
However, what type of stress testing is best? There are different types of assessments you might perform:
- Testing against interest rate scenarios.
- Looking at the current values of the properties you have mortgages against.
- Using overall changes in client equity position.
- And more.
There are also different points in time where stress testing occurs — sometimes at the application stage and sometimes during the lifecycle of a mortgage.
When looking at evaluating the value of the properties you hold as security, there are different options. Some lenders opt for using an Automated Valuation Model (AVM) tool whereas others buy bulk data that they have customized to suit the specific information they need.
We will explore each option:
1. AVM tools
AVM tools allow lenders to mitigate risk with accurate and objective data. They let you drill down at the deal level and look at an individual property’s potential sale value against what is owed and even validate other assets that a potential debtor has.
The key to a good AVM lies in the data source. When choosing an AVM tool, you want to ensure that the data source is up-to-date, accurate, quick and easy to access, and comprehensive.
2. Buying bulk data
Purchasing bulk data gives you the advantage of obtaining a lot of information that has already been organized for you. If you have a large portfolio, this can save time and money for stress testing many files at once.
Again, with bulk data the data source is critical. You want to work with a data provider that is giving you accurate figures and a cost-effective, convenient-to-access service.
3. PIN Monitoring
A third option for lenders to consider is PIN Monitoring — a unique solution delivered through the Purview platform. The solution enables customers to receive notifications for registration activity on properties in their securitized portfolio.
PIN monitoring tracks title registration activity for properties you have an interest in and then notifies you when something gets registered on the property. These property insights deliver greater confidence and operational efficiencies when it comes to managing your book of business.
The beauty of all three options is that they are both affordable and viable for lenders of all sizes. In fact, many AVM providers enable you to perform your research on a per-property basis and be more selective on the deals that you look at.
Purview offers mortgage lenders AVM tools, the option of buying bulk data to help with mortgage underwriting, and ongoing PIN Monitoring. Our data comes from the Province of Ontario Land Registration Information System (POLARIS) so you can trust that it is up-to-date, accurate, and easy to access.
Contact Purview for more information about our assessment tools and PIN Monitoring today. Call 1-855-787-8439 or visit www.purview.ca.