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First National Financial Corporation comments on revised B-20 mortgage rules

Oct 17, 2017

For Immediate Release

Toronto, Ontario, October 17, 2017 – First National Financial Corporation (TSX: FN) ”) 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

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.


For further information

Robert Inglis
Chief Financial Officer
First National Financial Corporation
Tel: 416-593-1100

Ernie Stapleton

Fundamental Creative Inc.
Tel: 905-648-9354