Canadian Mortgage Charter: Freeland said she put the plan in the Fall Economic Statement to help people who are “vulnerable borrowers.”
The Liberal government talked about a plan called the Canadian Mortgage Charter in the Fall Economic Statement (FES).
It says that the charter builds on current rules and guidelines about how banks should treat borrowers, according to the statement.
Freeland, who is also the Finance Minister and Deputy Prime Minister, said on Tuesday that the plan is one of the most important parts of the FES.
I’m well aware that a huge number of Canadians are worried about their debts going up since interest rates have gone up so quickly. Freeland said that they are worried about being able to pay to stay in their own houses. We’re telling you today that we know this is a tough situation and that we’re here to help.
What is the Canadian Mortgage Charter, who is it meant to help, what rules does it set out, and how are those rules enforced?
Is there a rule called the Canadian Mortgage Charter0?
Not at all. The Canadian Mortgage Charter (CMC) is not a law, and there are no plans to make it one.
A person from the Department of Finance told CBC News that the best way to understand the charter is as a set of rules and guidelines that banks should follow.
The Financial Consumer Agency of Canada (FCAC) released the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances (new window) in July. It is where most of the rules in the charter come from.
The CMC regulations were only shown in the Fall Economic Statement and would only be shown there again, according to a government employee.
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What does the pact state?
The code has six rules that explain how banks should treat borrowers who are weak or having trouble paying their bills. Because of the law, banks must:
Mortgage holders should be able to get short-term delays on their payments.
Get rid of the fees and costs that you would have had to pay for mortgage relief steps otherwise.
Don’t make insured mortgage holders re-qualify under the stress test if they move lenders when their mortgage is renewed.
Make banks contact homes four to six months before they have to renew their mortgages to talk about ways they can make their payments more affordable.
Let borrowers make one-time payments or sell their main home without having to pay early termination fees in order to avoid negative amortization.
Allow mortgage relief steps to cause mortgage payments that aren’t enough to cover loan interest payments. Do not charge interest on interest.
Are any of these rules brand new?
A Finance official told CBC News that most of the steps were already in place, but that they might not have been clear or easy for people to find. The official said that putting them all in one place helps people who are weak find out what their choices are.
Banks must notify borrowers four to six months before mortgage renewal under a new law.
Insured customers must pass the stress test when switching lenders for mortgage renewal. This is another new rule.
What does a “vulnerable borrower” mean?
The mortgage code doesn’t say what a “vulnerable borrower” is. According to the FCAC guidelines, a consumer at risk is someone who has a mortgage loan on their main home and is under a lot of financial stress because of unusual situations and is likely to default on their mortgage.
Banks contact all borrowers four to six months before their mortgages are due. This gives borrowers a chance to explain their unique financial situations to lenders, and the two can then work out their choices. Banks don’t choose who is at risk on their own.
Since January 1995, the Canadian Bankers Association (CBA) has used information from the big banks to find out how many debts are past due every month.
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The CBA says that a debt is “in arrears” if the payment has not been made for at least three months. As of September 30, 2023, there were 5,065,516 debts in Canada, and 8.140, or 0.16 percent, were past due.
This is more than the 0.14 percent that was owed in August 2022, which was the lowest amount of money owed since January 1995, when it was 0.50 percent.
Eleven CBA members gave information for the CBA’s mortgages in arrears statistics. However, the CBA says that credit unions and private mortgage companies also offer mortgages in Canada that are not included in the arrears statistics.
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Rules and standards to follow
A Finance official told CBC News that borrowers can make a complaint on the FCAC website if they are not given the measures for affordability that are spelled out in the mortgage charter. (opens in new window)
On its website, FCAC states that it investigates complaints regarding federally controlled banks, federal credit unions, authorized foreign banks, insurance companies, and trust and loan companies.
The FCAC website says that it uses the information it gets from studies to find problems and fix them, but it doesn’t say what steps are taken. The FCAC says that Parliament is told about the amount and types of complaints it gets.
The Canadian Mortgage Charter says that the federal government closely watches how financial institutions use and follow relief measures, such as the FCAC’s guidelines.
