The largest Canadian provider of reverse mortgages has sold $75-million of the loans to another bank, marking the first time a portfolio of this special category of home loans has been sold as a financial product in Canada.
HomeEquity Bank announced the sale to an unidentified Canadian bank on Wednesday. The buyer is Concentra Bank, a Saskatoon-based provider of wholesale banking and trust company services to credit unions, The Globe and Mail confirmed. HomeEquity Bank will continue to administer the mortgages on its behalf.
HomeEquity Bank is hoping the deal is a first step toward establishing a new market for buying and selling reverse mortgages, which are a small but growing niche product in Canada’s mortgage sector. The bank is looking to other financial institutions and pension plans as potential buyers, in an effort to manage its capital and diversify the sources of its funding, which comes mostly from deposits in guaranteed investment certificates, or GICs.
“The thing we really like about this is that somebody else now appreciates the nature of the business and the nature of the assets,” chief executive Steven Ranson said.
Reverse mortgages allow homeowners at the age of 55 or older to borrow against their primary home without making payments against the loan until it comes due – usually when the owner moves, sells the home or dies. These loans typically carry higher interest rates than conventional mortgages to compensate the lender for the longer time to repayment, which can average about nine to 12 years.
HomeEquity Bank dominates this small market in Canada through its CHIP Reverse Mortgage product, with nearly $3.3-billion in reverse mortgages on its balance sheet as of Oct. 31, according to regulatory filings. Its lone domestic competitor is Equitable Bank, a digital bank that is a relative newcomer to the category.
The market for reverse mortgages is growing: HomeEquity Bank expects to issue about $900-million in new reverse mortgages in the coming year, and would like to sell 10 per cent to 20 per cent of those, Mr. Ranson said.
Reverse mortgages “are a new area for us,” Concentra spokesperson Deborah Chatterton said, but the bank’s business model includes buying and selling mortgages and “our analysis indicated this was a good opportunity for us."
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