Who needs a pandemic when every day can be an “exceptional circumstance” for the market? A new report from the Financial Consumer Agency of Canada (FCAC), the country’s consumer watchdog, outlines the extraordinary mortgage relief measures it continues to deliver via the country’s banks. The agency delivered more than 8,000 mortgage relief measures over a 12-month period that ended earlier this year. The relief helps consumers save millions in penalties but fails to acknowledge the normalization of excess leverage or the moral hazard extended.
Canadian Mortgage Borrowers Saw Over “8,000 Relief Measures”
The FCAC relief measures are outlined in its Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, a document explaining the agency’s expectations for mitigating mortgage delinquencies. Between July 5, 2023 and June 30, 2024, the Guideline led to “more than 8,000 mortgage relief measures” via FRFIs, more commonly called banks.
Many Canadians have been able to bridge temporary gaps between what they owe on their mortgage and what they can pay thanks to the mortgage relief options offered by federally regulated financial institutions,” explains Frank Lofranco, the Deputy Commissioner of Supervision and Enforcement at the FCAC.
He adds, “While financial stress for mortgage holders has remained stable, many more mortgages are coming up for renewal over the next couple of years, and FCAC’s guideline will remain an important safeguard for Canadians experiencing financial difficulty.”
Consumers saved big from the changes meant to mitigate mortgage delinquencies. The agency estimates $4 million in penalties were avoided, with another $200k in fees and costs waived by the country’s banks.
But wait, there’s more! A number of mortgage loans issued with variable interest rates at record lows resulted in negative amortization. This is when the payment fails to cover the interest resulting in a longer mortgage by the time a payment is made. These make American subprime, interest-only loans made during the 2006-2008 housing bubble, seem like smart fiscal planning. It also happens to be an area where people were rewarded for the decision.
“The most common relief measures FRFIs implemented to support consumers were waiving penalties for lump-sum payments that were made to avoid negative amortization and waiving interest charges on interest,” explains the agency.
Outside of politics, interest on interest is better known as compound interest. Investors love to receive it but they hate to pay it. While it’s generous to not charge borrowers compound interest, it’s still a liability for those who made the loan. It’s unclear how that liability was covered, but typically that would be through loss socialization. The most obvious solutions would be higher premiums for borrowers or an opaquely delivered taxpayer-funded solution, such as liquidity injections.
In any case, it’s great that the FCAC was able to mitigate losses for both lenders and households. However, the fact it had to roll out such an extensive program alongside so many other programs for mortgage failure mitigation, is an ominous sign. Moral hazard continues to build and with each round of bailouts the problem gets larger and results in a bigger fallout to the public that isn’t necessarily financial.
More relief is needed to support house prices.
Canadians depend on the value of their homes for retirement and spending cash. Bank of Canada, do what is right and drop rates to 0% to save Canada.
The economy is dependent on increasing house prices. The small 0.50 rate cuts so far are a good start but there is much more work to do. Drop by 1.0 in January.
I take your point about moral hazard and all, but if “more than 8,000 mortgage relief measures” over a year refers to 8,000 mortgages, that’s a trivial number. Makes me wonder what the FCAC did after lunch…
so the FRFI knows the perils of maxed out credit , and are throwing out a little bit of rope to the distressed and naive borrowers , the caveat being that at the end of that rope is a noose, how many will dangle when the shit hits the proverbial fan? Did I mention that they don’t care, they are allowed the tax break of loan loss provisions so they never lose , and so it goes on . the Bank Act guarantees the banks make money without outside competition , time to rethink that situation.
There couldn’t possibly be a correlation between the 28 ministers who are landlords and the relentless propping up of the housing industry through legislation.
I think you should play the theme from “Jaws” on the website…
Canada has clearly become a country run by its banks. While relief for a select few homeowners is ok, I guess,when we look at the amount of liability and debt that our federal government has taken on to relieve the banks of any risk, the obvious question is, at what point does all this become unsustainable?
Obviously canada has a serious housing bubble. The reality is all the measures taken by Freeland, the BoC, and others have only delayed the recko ing that will come. We know that when people,e are spending more than 40% on debt that this is unsustainable. Because of Canada’s antiquated political system, Freeland has used mass8ve increases in the money supply tomaintainunsustainable debt levels by consumers and SMEs. This has 3 consequences,first is that this is clearly the root cause of our cost of livng mess. Canada’s m3 has grown far faster than any other g7 country since 2015. That means that the feds are debating our dollar to Mai tain high housing prices.
Secondly, if our gdp was growing it might be OK to increase the m3, but that isn’t happening. Outside of our real estate and banking sectors, Canada’s econo y has done very very poorly. Once the false data from 6M immigrants is removed, our economy hasn’t been this bad since the 1930s. In contrast to the usa, our standard of living has dropped 60% since 2014? This is even worse if you figure that housing and banking have created non productive gdp, which is the root cause of the loss of income. Building houses to speculate on might be good for mattamy, td, or the liberals,but it’s divertedalmost all investment from things that would actually generate more income e.
Finally, none of this will stop the eventual corre tion I housing prices. In fact, had the 2014 mini recssion been allowed to correct housing prices in on, qc and bc, we would not be here today. So for trudeau keeping g his backers using their home as an atm has kept him in his job.its also been really good for banks, realtors, etc. When it all crashes, don’t expect anyone to be there for them.