The Canadian Mortgage Charter is a program that the Liberal government introduced in the Fall Economic Statement (FES).
The statement claims that the charter expands upon “existing guidance and expectations” concerning the treatment of borrowers by financial institutions.
Chrystia Freeland, who is also the finance minister and deputy prime minister, touted the charter as “one of the most important things” about the FES on Tuesday.
Many Canadians are understandably worried that their mortgage payments will increase now that interest rates have risen so sharply. Their ability to remain in their own houses financially is a major problem, according to Freeland. “What we’re saying today is that we understand this is a challenging situation, and we are here to help.”
Who is the Canadian Mortgage Charter trying to assist, what are its requirements, and how are they enforced?
Does Canada’s Mortgage Charter constitute legislation?
There are currently no intentions to adopt legislation that would make the Canadian Mortgage Charter [CMC] a law.
Background information from a Department of Finance official suggests that banks should view the charter more like a set of “rules and expectations” to which they are obligated to adhere, according to CBC News.
A large portion of the charter’s regulations are derived from the Financial Consumer Agency of Canada’s (FCAC) July Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances.
Based on the official’s statement, the CMC rules have only been or will be announced in the Fall Economic Statement.
There are Canadian housing advocates who are arguing that the federal government should act swiftly to disburse the recently pledged funds in order to accelerate the development boom. In Tuesday’s fall fiscal report, the government pledged $16 billion for rental and social housing. However, the cash will not be activated until at least 2025.
May I ask what the charter states?
Six principles governing the treatment of “vulnerable borrowers” in times of financial hardship are outlined in the charter. Banks are required to do the following under the charter:
- Make it possible for mortgage holders to temporarily extend the amortization period.
- Get out of paying for mortgage relief programs by waiving fees and other expenses.
- At the time of mortgage renewal, holders of insured mortgages are exempt from being re-qualified under the stress test if they move lenders.
- Make it mandatory for financial institutions to contact homeowners at least 45 days before their mortgage is up for renewal to discuss affordable solutions.
- If borrowers want to prevent negative amortization or sell their primary house before the loan is paid off, they can make a lump-sum payment.
- When a borrower’s mortgage payment is insufficient to cover interest payments, the lender may choose to forego collecting interest altogether.
How recent are these regulations?
According to the official from Finance who spoke with CBC News, the majority of the safeguards were already in place, but they might have been hard for customers to understand or locate. According to the official, consolidating them into one spot facilitates vulnerable borrowers’ understanding of their options.
One change is that financial institutions must notify homeowners at least four to six months in advance of their mortgages’ renewal dates.
Another change is that insured borrowers getting a new mortgage at the same time as the stress test must be exempt from the test.
Do you know who a “vulnerable borrower” is?
Nothing in the mortgage charter specifies who is considered a “vulnerable borrower.” The FCAC definition of a “consumer at risk” is an individual “with an existing residential mortgage loan on their principal residence who [is] experiencing severe financial stress as a result of exceptional circumstances and [is] at risk of mortgage default.”
Lenders and borrowers can discuss choices when the bank contacts all borrowers four to six months before the mortgage is due. This gives borrowers the chance to explain their individual financial problems. It is not up to banks to determine who is vulnerable.
From January 1995 onwards, the Canadian Bankers Association (CBA) has been tracking the monthly number of mortgages in arrears using data collected from the country’s largest banks.
The CBA considers a mortgage to be in arrears if the payment is three months overdue. There were 5,065,516 mortgages in Canada as of September 30, 2023, with 8,140, or 0.16 percent, in arrears, according to figures from the Canadian Bankers Association.
This figure represents an increase from the previous low point of 0.14 percent in August 2022, the lowest point since January 1995, when it stood at 0.5 percent.
Eleven CBA members contributed to the mortgages in arrears statistics, but the CBA claims that private mortgage businesses and credit unions in Canada also supply mortgages that aren’t included in the statistics.
How does one go about enforcing laws and regulations?
Borrowers who do not receive the affordability measures specified in the mortgage charter can submit a complaint through the FCAC website, according to the finance official who spoke with CBC News.
Banks, federal credit unions, authorized foreign banks, insurance companies, trust and loan firms, and other financial entities regulated by the federal government are the purported targets of FCAC investigations.
The FCAC website refers to the use of investigational data to “identify and address situations” without specifying the methods employed. It is stated by the FCAC that Parliament is informed of the “numbers and types” of complaints it receives.
The Canadian Mortgage Charter states that the federal government keeps a close eye on financial institutions’ “implementation of and compliance with relief measures, including the FCAC’s guideline,” but it stops short of specifying the specific enforcement tactics used.
