First National sees 43% jump in funded residential mortgages, but revenue boost deferred

Total mortgage originations, including commercial deals, were $2.1 billion—or 26.5%— higher compared to a year earlier.

For the full year, total mortgage origination volume in 2024 was slightly higher compared to 2023, reflecting a 7% decline in single-family originations, offset by a 14% increase in commercial mortgage volumes.

However, while originations were higher in the fourth quarter, most of the additional funding came through securitization rather than investor placements, meaning the associated revenue will flow in over future periods rather than immediately impacting earnings.

“The year-over-year growth in residential funding in the fourth quarter is notable, especially when compared to the year-over-year declines in the first three quarters,” noted President and CEO Jason Ellis.

He added that Q4 provided a true apples-to-apples comparison, as the company’s market share earlier in the year had been temporarily inflated by the absence of Scotiabank, which had slowed the growth of its mortgage portfolio to focus on deposit growth and balance sheet optimization.

In Q4 of 2023, however, Scotiabank aggressively re-entered the market, and as a result First National’s share of funded mortgages normalized.

“Despite the return to traditional market dynamics, [First National] remained focused and with a combination of higher housing activity, fourth quarter single-family originations surpassed 2023 levels by 44%,” he added.

COVID-era mortgage renewals set to boost earnings

First National expects a strong earnings boost as a wave of pandemic-era mortgages comes up for renewal. With five-year terms being the most common in the single-family market, many of the loans originated during the 2020 housing surge are now maturing, creating a prime opportunity for the lender.

Ellis confirmed that First National earns a new placement fee when these mortgages are renewed with the same institutional investor. Unlike the initial placement, there’s no broker commission, making renewals a more profitable revenue stream. CFO Robert Inglis called them “real gravy” for the company, as net revenue from these deals can even exceed the original transaction.

Ellis also emphasized that these renewals carry little risk for First National, as all funding and interest rate exposure—including bond yield fluctuations—falls on the investor. “We earn a fixed fee in both cases regardless of where spreads are,” he said, ensuring stable earnings even in volatile market conditions.

Arrears remain low, with signs of improvement in Excalibur portfolio

Arrears in First National’s prime mortgage portfolio remain steady, with 90-day-plus delinquencies holding at 9 basis points—unchanged from previous quarters and still lower than pre-pandemic levels. Ellis noted that even borrowers with adjustable-rate mortgages, who faced the sharpest payment increases, have shown resilience, with no signs of stress in the portfolio.

The company’s Excalibur portfolio, which serves borrowers outside the prime space, did see arrears rise throughout 2024 as shorter-term mortgages renewed into significantly higher rates.

However, Ellis pointed to encouraging trends in early 2025, with the 90-day-plus delinquency rate stabilizing and early-stage delinquencies (30 to 60 days) beginning to decline. “So, that looks like the beginning of the end of elevated arrears in the Excalibur program,” he said.

Despite the temporary uptick in arrears, First National’s exposure to credit losses remains minimal. Ellis emphasized that Excalibur borrowers hold substantial home equity, and the company primarily lends in well-established markets like the GTA and GBA, where liquidity remains strong. “Losses continue to be rounding errors,” he said, adding that First National remains well over-provisioned for any potential risks.

Q4 earnings overview

Notables from its call:

First National President and CEO Jason Ellis commented on the following topics during the company’s fourth-quarter earnings call:

On the renewal wave:

• “As a marketplace risk, much has been said about a renewal cliff as those maturing mortgages carried historically low mortgage coupons. To provide some context, approximately 75% of those First National 5-year mortgages advanced in 2020 were adjustable-rate. At one point, those borrowers were making payments based on a prime rate of 7.20%.”
• “This is noteworthy because First National did not experience a significant increase in arrears on those adjustable-rate mortgages when prime was 7.20%. So, it is entirely reasonable to assume we will not see any change in arrears as these borrowers renew.”

On mortgage market competition:

• “I’d say the market [is as competitive] as it’s ever been. I think maybe as I’ve said in previous quarters, mortgages, especially residential mortgages and to a lesser degree, but even CMHC insured multi-family mortgages, are close to commodities. And so, I’d say the market is always competitive. It’s always characterized by one or more participants sort of leaning into it a little bit, but I don’t see any difference in the way people are lending right now.”

On the outlook for single-family originations:

• “We expect year-over-year increases in single-family fundings in the next two quarters. This expectation is supported by higher commitment levels entering 2025 than we had entering 2024.”
• “We’re definitely seeing stronger pipeline this year in the January and February months than we did in 2024. But the sort of 40% to 50% magnitude that we saw heading into the fourth quarter is not what we’re seeing now. It’s definitely moderated from that, but still I’d call it definitely double digits.”
• “Tariffs, to the degree they impact the economy, employment and the housing market present a potential challenge to that outlook. In the near term, however, lower rates and reduced housing activity may actually create a level of affordability that when paired with the persistent demand for housing in Canada could serve to moderate any headwinds.”

On the impact of the removal of the mortgage stress test on uninsured straight switches:

• The impact “hasn’t been measurable. Our experience was even before that change…what we were doing is we were actually testing them against the prevailing qualifying rate at renewal and we were finding the overwhelming majority of our conventional borrowers were qualifying regardless of whether or not they needed to be re-qualified. Wage inflation between 2020 and today has been significant, so most household incomes are higher. So, we actually weren’t finding that that was a material barrier to borrowers making a decision to move lenders if they wanted to anyway. So, it hasn’t been a significant factor.”

On prepayment speeds and retention rate:

• “I think prepayment speeds are generally the same this year as they were last. They’re probably even still a little bit lower than the long-term averages. However, I would say our retention rate on renewals in 2024 was lower than the long-term average by a number of percentage points. We found, as I think most lenders did this year, there was enhanced activity around competition for renewed mortgages.”

On First National’s third-party underwriting business:

• “Lower rates should also be supportive of activity within our third-party underwriting business, where we successfully ramped up capabilities for our newest bank client [BMO] in 2024 in advance of higher expected volumes. We see our third-party business as a sound way to leverage our platform, including Merlin technology and to add value and earning stability through diversification of revenue.”

On commercial lending activity:

• “First National is the leader in the insured multi-unit space and the quarter’s results reflect activity driven by CMHC incentives to build rental stock and create affordable housing. Given the broad success of its affordable loan programs and growing exposure to concentrated risk in the multifamily space, CMHC has recently taken a more cautious view in its underwriting. This is understandable, good for market stability. Nonetheless, lower rates will provide incentive for continued activity and in the short run, we expect new commercial origination volumes to be steady.”

First National Q4 conference call

Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.

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Last modified: March 17, 2025