The Financial Consumer Agency of Canada (FCAC) has announced new guidelines for mortgage lenders following research that showed an increasing number of Canadians are struggling to meet their regular financial obligations. The rising cost of living and hiked interest rates are among the key causes of financial stress for many borrowers.
The FCAC says that two-thirds of mortgage borrowers are facing financial hardship, with some having entered into negative amortisation. This means that their fixed payments no longer cover even the interest portion due, leading to interest accruing and an increase to their total amount owed.
Under the guidelines, federally regulated financial institutions are being encouraged to provide “fair and consistent approaches” that will support at-risk borrowers. The financial watchdog has not provided any specific measures that should be undertaken but is recommending that lenders aim for fairness, appropriateness, and accessibility.
Lenders are also being asked to avoid taking advantage of borrowers seeking to renew their mortgages by offering them less advantageous rates due to their not being able to adjust their mortgage agreements or switch to other lending institutions.
Variable-rate mortgage holders are particularly vulnerable to the rising interest rate changes, with those holding fixed-rate loans facing steep hikes when their mortgages are due for renewal. Some suggested approaches to handling borrowers that are at high risk of defaulting on mortgage loans for primary residences include extending amortisation, waiving interest charges on interest, waiving prepayment penalties, and waiving internal fees and costs.
Lenders are also being urged to take a proactive role in monitoring and contacting at-risk customers and providing them with relief measures based on individual circumstances and needs. The FCAC has said it will be monitoring lenders to ensure compliance with these expectations. It assures that where there is a failure to comply, the authority will intensify regularity oversight and seek to work with the lender in solving the problem.
The Office of the Superintendent of Financial Institutions is, however, warning lenders to be cautious about mortgage extensions as though they may offer borrowers some relief, this approach would keep them in debt for longer.
The Canadian Bankers Association (CBA) is also reviewing the guidelines to assess what impact they may have on its memberships’ current practices and has stated that banks are already offering support to at-risk clients to help them keep their loans in good standing. CBA spokeswoman, Laurie Lupton, said that the Canadian banks understood that the financial well-being of their customers was crucial to the individual, and the health of the communities and the economy.
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