A Canadian Bank Already Sees Expired Mortgage Payment Deferrals Turn Delinquent

Not every Canadian that took a credit payment deferral needed one. Don’t let that fool you into thinking no one needed a payment deferral though. Royal Bank of Canada (RBC) data shows the number of expired payment deferrals the bank is carrying. The vast majority of people have resumed payments without problem. However, delinquencies are showing up at a higher rate than usual already.

RBC Reports 1.8% Of Mortgages That Resumed Payment Are Delinquent

Expired mortgage and HELOC payment deferrals are turning delinquent… fast. The bank has seen $45.7 billion worth of mortgage and HELOC payment deferrals expire. They’ve already seen 1.8% of the balance with expired deferrals, turn delinquent. It’s somewhat of a surprise, considering the narrative of a hot real estate market.

Breaking this segment down, insured mortgages became delinquent faster than uninsured ones. Of the $14.3 billion insured mortgage debt with expired payment deferrals, 2.3% are now delinquent. Insured mortgages are typically high-ratio ones, which mean smaller down payments. In other words, this demographic is likely young homebuyers

Uninsured mortgages and HELOCs did a little better than insured mortgages. The uninsured segment represented $31.4 billion of the balance of expired deferrals. RBC has seen 1.6% of that balance turn delinquent at this point. Uninsured and HELOC debt would have a minimum amount of 20% equity, so it’s not surprising to see the number is lower. It is surprising to see people with so much equity not handle this smoother.

Credit Cards Resuming Payments Hit 8.9% Delinquency Rate

Credit card debt typically has a higher delinquency rate, but expired deferrals are much higher. The bank has $1.4 billion in credit card debt with expired payment deferrals. About 8.9% of that balance is already delinquent. When I said the industry standard is higher, I meant big banks had an average credit card delinquency rate of 0.79% last year. To see 8.9% of balances resume payments and turn delinquent already is very surprising here.

Personal loans aren’t doing as bad as credit cards, but are still seeing expired payment deferrals turn into delinquencies. The bank reported $2.4 billion in personal loans had their payment deferrals expire in Q4. They disclosed 4.5% of those are currently delinquent already. A much lower rate than credit cards, but on a higher balance – putting the delinquent amount within spitting distance.

Higher delinquencies coming out of payment deferrals was to be expected, just not this fast and in this environment. There’s still a large number of programs padding lost income, and mortgages are even more weird. Typically people only default on a mortgage when they can’t sell fast enough. Considering how undersupplied almost every market is right now, relative to buyers, it makes little sense.

That said, bank data also shows 32% of the deferred balances that turned delinquent, were delinquent prior to the deferral. It’s not entirely a pandemic issue, if loans were delinquent at the beginning of the pandemic. This indicates the borrowers stopped paying bills well before.