In response to rising household debt and high interest rates, Canada's financial watchdog is ensuring that banks are providing the necessary supports to mortgage holders at risk of default.
On Wednesday, the Financial Consumer Agency of Canada (FCAC) published a new guideline directing federally regulated financial institutions (FRFIs) to provide tailored support to consumers with mortgages on their primary residence who are experiencing "severe" financial difficulty.
Rather than outline exact relief measures FRFIs should take, the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances sets out the expectation that supports be guided by the principles of fairness, appropriateness, and accessibility.
"Today’s economic environment is characterized by high household debt, increased cost of living, and higher interest rates," the FCAC said. "As a result, some mortgage holders are at risk of not keeping up with their regular payments."
According to research conducted by the FCAC, a "growing number of homeowners with a mortgage are at risk of experiencing financial hardships, such as having to increasingly borrow for daily expenses or draw on savings."
All available mortgage relief measure should be considered, the FCAC noted, including waiving prepayment penalties, waiving internal fees and costs, not charging interest on interest, and extending amortization periods.
FRFIs should not offer consumers who are up for mortgage renewal a "less advantageous rate" based on their inability to adjust their mortgage credit agreement or qualify with other lenders.
Supports should be directed to variable-rate mortgage holders whose monthly payments have increased materially due to rising interest rates, as well as those with fixed payments who have seen a larger portion of their payments allocated to interest or who are facing negative amortization.
Relief will also be offered to those with fixed-rate mortgages that are approaching maturity and who may face material increase in their payments.
FRFIs are expected to proactively contact at-risk mortgage holders and provide them with information on relief measures so that they can make "timely and informed" decisions. At no cost to the consumer, FRFIs should provide educational tools and resources that support sound financial decision-making.
"FCAC recognizes the positive actions that many financial institutions are taking to assist their customers during challenging times. FCAC’s guideline builds on these practices," said Judith Robertson, Commissioner of the FCAC.
"FCAC’s guideline will help protect Canadians with mortgages who are experiencing severe financial stress, and make sure they are treated fairly and consistently in their dealings with their financial institutions."
