TORONTO, Oct. 11, 2016 /CNW/ - First National Financial
Corporation (TSX: FN, TSX: FN.PR.A, TSX: FN.PR.B) (the
"Company" or "FNFC") today commented on the Department of Finance's
recently announced new mortgage rules.
These rules include most significantly, an increase in the
qualifying rate on fixed rate mortgages with terms of five years or
greater and changes in the eligibility rules for newly issued
low-ratio mortgages for portfolio insurance. While all mortgage
lenders, including First National, will see a decrease in single
family market activity levels as a result of these changes and
their impact on borrowers, the Company's business model will
mitigate much of the impact.
Following an initial review of the policy changes and their
expected influence on Canada's
single family housing market, the Company stated the following:
- Due to the economics of new single family originations, they
provide little if any earnings 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 2016 or 2017 earnings.
- First National originates approximately $22 billion of mortgages annually consisting of
$13 billion of new single family
residential, $5 billion of single
family renewals and $4 billion of
commercial mortgages. Of the new single family originations,
approximately 41% or $5.3 billion are
insured mortgages subject to the new qualifying rate. We
anticipate a decline in these originations of approximately 8-10%,
or approximately 2-3% of overall originations. We do not anticipate
any material impact on our other originations and renewals as a
result of the new rules.
- First National earns most of its profit from its large
$70 billion servicing portfolio and
its $25 billion portfolio of
securitized mortgages. These portfolios will continue to provide
earnings to the Company over the life of the mortgages.
- First National has diversified funding sources. While some
conventional mortgages originated in the past would not now be
eligible for NHA MBS securitization, the Company has institutional
investors and asset-backed commercial paper conduits that can
purchase such mortgages without portfolio insurance.
"First National's business model and diversified mortgage
lending activities and sources of funding provide all the strength
and flexibility we need to respond effectively in the coming months
to the Federal Government's new policy directions," 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. This positioning and the Company's
business model will not change. Certain product offerings will be
revised to conform with the new rules and funding sources and we
are, broadly speaking, taking a business as usual position.
The Company will discuss its views in more detail on
October 25th, 2016 when it
reports its third quarter results.
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 $96
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