Monday Market Minute | Jun 29, 2020

Mortgage deferral cliff approaches — most borrowers expected to resume payments

What Moved

The first wave of six-month mortgage deferrals granted in March was approaching its September expiry, and early indications from lenders were cautiously positive. Banks reported that many borrowers who had taken deferrals as a precautionary measure had already voluntarily resumed payments. Deferral rates had declined from the peak of approximately 16% to under 12%. Employment was recovering — StatsCan reported 290,000 jobs added in May. MIC lenders reported similar trends, with deferral portfolios shrinking as borrowers re-engaged. The feared "deferral cliff" was looking more like a gradual step-down.

Why It Matters

For MIC investors and private credit allocators, the deferral trajectory was the most important leading indicator for portfolio health. Every borrower who resumed payments voluntarily reduced the risk of concentrated default pressure when formal deferral periods expired. The combination of recovering employment, low rates, and rising property values gave borrowers both the capacity and incentive to stay current. The scenario of a mass default wave at the deferral cliff was fading from probability.

Signal to Watch

Track the percentage of deferred borrowers who fail to resume payments by September. If the non-resumption rate stayed below 5%, the mortgage system would have navigated the crisis with minimal permanent damage.

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