Canadian banks are going to make it a little more difficult to get a break from your mortgage. Office of the Superintendent of Financial Institutions (OSFI) announced they will begin phasing out special treatment of payment deferrals. Previously, due to the pandemic, the regulator had allowed banks to avoid classifying payment deferrals as non-performing loans. Starting in October, no new deferrals will receive special treatment.
Regulators Gave Banks Freedom To Defer Payments
In March, OSFI began giving banks special capital treatment for deferred loans. This allowed deferral of payments without classifying the account as non-performing. Non-performing loans typically require banks to set aside extra capital, in case the loan goes bad. By avoiding the non-performing classification, banks were able to avoid setting aside extra cash. The program encouraged banks to easily grant deferrals for up to six months.
Payment Deferral Programs Start Phase Out In September
Starting tomorrow, OSFI is phasing out this program. Accounts granted a payment deferral from September 1 to September 30 will only receive special treatment for a max of 3 months. This is down from the previous six months from March to August. As of October 1, no new payment deferrals granted will be subject to special treatment. Basically, the program now has a final date.
What Does This Mean?
This likely means payment deferrals won’t be as easily granted from lenders. OSFI’s special treatment made it a no brainer to grant a deferral to borrowers. Since the lender didn’t have to classify it as non-performing, or put aside extra cash, they granted them with ease. Now banks will have to revert to their pre-pandemic support programs for borrowers experiencing hardship.
An end to payment deferrals means the deferral cliff is getting closer. While some people are expected to smoothly transition back to regular payments, the plan was always just to buy people a little extra time. Higher credit defaults are forecasted to rise well into next year.
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So what do they do when there’s a second wave that impacts a totally different group of people?
In Australia our banks are just extending the deferrals at their own expenses. The amount of mortgage growth isn’t high enough to skip.
Kyle,
In your opinion, in Australia, are large amounts of households under water? Do many of them owe more than what there housing units are worth at this time? I’m trying to gauge the deferrals against the financial health of households going into these deferrals.
An example is some friends of ours that live in South Carolina are on a “payment holiday”. Because there house has grown in value so high from when they bought it in 2013 (US housing crash), they could continue to only pay interest for something like 5 years and the property value would remain higher than balance on mortgage.
In Australia they will have a deficit of $85 billion not $340 billion in 2020 we are racking up in Canada so not the same situation even though the two countries have similarities.
Well over 400 billion now with the extension Trudeau did for ‘CERB’ (400 a week for an additional 24 weeks as well as the original 500 for 4 more weeks).
It’s my understanding people on deferrals aren’t allowed to refinance until they’re caught up on payments. Is that why they volunteered to give some people that didn’t need it deferrals? To screw up taking advantage of rock bottom rates?
I was thinking the same thing today and I came to the same conclusion
Anyone who asked for a mortgage deferral got one. There was no checklist of requirements. If you had a mortgage, you got a deferral, no questions asked.
Now ask renters whether they got a no-questions-asked deferral on their rent payments.
Thank you. Exactly!
With most/all lenders, you don’t have to be caught up but you do have to be making regular payments again.
Saw on the news someone said take out a line of credit. Sweet Mary and Joseph, that is a terrible idea.
Actually maybe not. Underwater mortgage, no savings, financed car, line of credit for one last party, sock away that cash in a sock, go bankrupt and repeat.
From a purely risk management perspective the banks should not give any more special treatment for high risk customers. IE those in certain industries and those who have multiple investment properties. You want to be ahead of the default wave when you liquidate these houses, meaning your recovery amount will be larger if you foreclose on high risk customers BEFORE your competitors.
This is capitalism
Landlords were given government-mandated deferrals on up to 4 rental properties. No questions asked.
Renters were given zilch. No deferrals on rent payments.
This country is rotten to the young.
In actual fact the FEDS gave renters (and pretty much anyone) 500 a week for (now) 28 weeks (with now a new program giving them 400 a week for an additional 24 weeks) all while the Provincial and Municipal levels protected these tenants from eviction. The greater part of them did not pay their rent to their landlords. So what happened? These Tenants collected 500 to 1000 a week (for a couple) and did not pay their rent for 5-6 months and then instead of paying what they owed they moved out (as the protection from eviction ran out). So now these Landlord/Investors are stuck holding the bag and since there is a backlog at the courthouse they will most likely lose everything and go bankrupt before their case is even seen. It’s a bad time right now for people with ambition who thought they were doing the right thing investing in real estate. The fall out is going to be something no one has ever seen. Think 50% plus drop to real estate prices. Take a look at Japan and what happened to them in the late 80s through til today if you want a hint at what’s coming.
CERB is irrelevant to my comment because, as you noted, it was available to EVERYONE. I’m sure there were many landlords deferring their mortgage, AND collecting rent, AND collecting CERB.
And the eviction ban is also beside the point. Non-payment of rent remained illegal, as it should be. So this naturally limits the numbers of renters refusing to pay up. However, non-payment of mortgages was greenlighted by the government. This gave homeowners, including landlords, a gift of 6-months of legal non-payment without consequences to put that money into the stock market, whereas renters were not provided with an equivalent LEGAL means to defer their rent for 6 months.
That’s the unfairness of it. You might say “well life in unfair”, and that’s true. But we can acknowledge that homeowners and landlords are propped up the government while renters get nothing. So nobody shoud be surprised if renters push back in the big cities where they make up a sizeable voting block.
dude… So much to unpack. First, sorry you are in deep right now, I’m sure it seems unfair…
but suggesting failure happened to the ‘ambitious’ is a little much…
and I know renting today is a total renters market, but the people I know with units said they were almost entirely paid up.
I paid my rent, never thought twice…
The government using these measures to prop up housing price should be consider a crime against all Canadians. We are basically using our futures to pay for speculator wealth.
This is the most criminal wealth transfer in Canadian history.
Family of 4 adult , no job receiving CERB got qualify from the bank for mortgage , bought house.
Disgusting meanwhile we have been working are assets off for 3 ywars and still cant get into the housing market screw this
oh really? you think 4 people on ‘welfare’ got a mortgage from a bank?
I’m calling BS on this one
Go to mortgage Brocker , most of them saying you come up with %20 down , do not be worry about of anything else (income) we will get mortgage for you. You think people buying house for over 1.2 m
all of them have over $200,000 income.