TORONTO, Oct. 17, 2017 /CNW/ - First National Financial
Corporation (TSX: FN, TSX: FN.PR.A, TSX: FN.PR.B) (the
"Company" or "FNFC") has issued the following comments on the
revised Guideline B-20 – Residential Mortgage Underwriting
Practices and Procedures published today in final form by the
Office of the Superintendent of Financial Institutions Canada
("OSFI").
Although First National is not a Federally Regulated Financial
Institution, the nature of its operations and commitment to the
highest quality underwriting standards will require it to follow
the Guideline which comes into effect on January 1, 2018.
The Company believes the most significant change to mortgage
underwriting rules is the increase in the qualifying rate on
uninsured mortgages. Prior to this change, uninsured borrowers
would qualify for debt service based on the contract rate of the
mortgage. The new guidance requires qualification using the greater
of the contract rate plus 2% or the five-year benchmark rate
published by the Bank of Canada. The Company believes all
mortgage lenders, including First National, will see a decrease in
conventional single-family market activity levels as a result of
this change.
Following an initial review of the policy changes and their
expected influence on Canada's
single-family housing market, the Company stated the following:
- New single-family originations provide little if any earnings
to First National in the year they are underwritten. Profits
are delivered to shareholders as the Company receives servicing
income and the net interest margin from securitized mortgages. As a
result, we believe that any reduction in origination as a result of
these rules will have little to no impact on our 2017 or 2018
earnings.
- First National currently originates approximately $20 billion of mortgages annually consisting of
$10 billion of new-single family
residential, $5 billion of
single-family renewals and $5 billion
of commercial mortgages. Of the new single-family
originations in the past 9-month period to September 30, 2017, $4.2
billion were uninsured mortgages. Of this amount, our
calculations indicate $1.0 billion
would have been affected by the new qualification rule. Those
affected borrowers would have needed to reduce the amount of their
mortgages by approximately $0.1
billion in the aggregate in order to qualify under the new
rules. This is less than 1% of the Company's overall origination
volume for that period. We do not anticipate any material impact on
our other originations and renewals as a result of the revised
Guideline.
- First National earns most of its profit from its large
$74 billion servicing portfolio and
its $26 billion portfolio of
securitized mortgages. These portfolios will continue to provide
earnings to the Company over the life of the mortgages.
"First National's business model and diversified mortgage
lending activities and sources of funding provide the strength and
flexibility we need to respond effectively in the coming months to
OSFI's new guidance," said Stephen
Smith, Chairman and Chief Executive Officer. "First National
will assimilate these changes and continue to provide the same
highly competitive, service-first value proposition that has made
us Canada's largest non-bank
mortgage lender. Our very clear message to our partners in the
mortgage broker channel is that we are open for business and are
looking forward to another year of good performance."
First National has positioned itself as the leading non-bank
lender in Canada originating the
highest quality of mortgages. Certain product offerings and
underwriting processes will be revised to conform to the new rules
but broadly speaking, the Company is taking a business as usual
position as it relates to the revised Guideline.
About First National Financial Corporation
First
National Financial Corporation (TSX: FN, TSX: FN.PR.A,
TSX:FN.PR.B) is the parent company of First National Financial
LP, a Canadian-based originator, underwriter and servicer of
predominantly prime residential (single-family and multi-unit) and
commercial mortgages. With more than $100
billion in mortgages under administration, First National is
Canada's largest non-bank
originator and underwriter of mortgages and is among the top three
in market share in the mortgage broker distribution channel.
For more information, please visit www.firstnational.ca.
Forward-Looking Information
Certain information
included in this news release may constitute forward-looking
information within the meaning of securities laws. In some cases,
forward-looking information can be identified by the use of terms
such as "may", "will, "should", "expect", "plan", "anticipate",
"believe", "intend", "estimate", "predict", "potential", "continue"
or other similar expressions concerning matters that are not
historical facts. Forward-looking information may relate to
management's future outlook and anticipated events or results, and
may include statements or information regarding the future
financial position, business strategy and strategic goals, product
development activities, projected costs and capital expenditures,
financial results, risk management strategies, hedging activities,
geographic expansion, licensing plans, taxes and other plans and
objectives of or involving the Company. Particularly, information
regarding growth objectives, any future increase in mortgages under
administration, future use of securitization vehicles, industry
trends and future revenues is forward-looking information.
Forward-looking information is based on certain factors and
assumptions regarding, among other things, interest rate changes
and responses to such changes, the demand for institutionally
placed and securitized mortgages, the status of the applicable
regulatory regime and the use of mortgage brokers for single family
residential mortgages. This forward-looking information should not
be read as providing guarantees of future performance or results,
and will not necessarily be an accurate indication of whether or
not, or the times by which, those results will be achieved. While
management considers these assumptions to be reasonable based on
information currently available, they may prove to be incorrect.
Forward looking-information is subject to certain factors,
including risks and uncertainties listed under ''Risk and
Uncertainties Affecting the Business'' in the MD&A, that could
cause actual results to differ materially from what management
currently expects. These factors include reliance on sources of
funding, concentration of institutional investors, reliance on
relationships with independent mortgage brokers and changes in the
interest rate environment. This forward-looking information is as
of the date of this release, and is subject to change after such
date. However, management and First National disclaim any intention
or obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
except as required under applicable securities regulations.
SOURCE First National Financial Corporation