Asking too much about mortgages is triggering these two Canadian banks
A colleague, riding the bus to work one morning this week, heard two young men talking about a struggling friend whose bank significantly increased his mortgage payments due to Canada’s skyrocketing interest rates. Everyone is talking about this stuff.
The bank that deserves credit for transparency in this matter is Canadian Imperial Bank of Commerce, which provided disclosure that earned them a story in The Globe and Mail last week. Based on a footnote in CIBC’s financial statements, The Globe reported that $52-billion worth of mortgages – about 20 per cent of CIBC’s $263-billion residential loan portfolio – were in a position where the borrower’s monthly payment was not enough to cover the entire interest portion of the loans.
The big story is that CIBC’s disclosure is the first from a major bank outlining the amount of variable-rate loans in which payments no longer cover all their interest costs. The big question, however, is why TD and BMO have not disclosed it as well. For the initial CIBC story, The Globe asked BMO and TD to match CIBC’s disclosure and explain why they would not provide the percentage or number of their mortgage loans with a negative amortization. In an absurdist theatre of many words, some more helpful than others, they declined.
I asked both BMO and TD: Does the bank believe the proportion of mortgage borrowers going into negative amortization territory is immaterial? Materiality is a concept of disclosure that is more than a quantitative size test. A fact is material if it can reasonably be expected to have a significant effect on how an investor prices a company’s stock.
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