Canadian Superintendent of Financial Institutions Peter Routledge issued a directive ordering bankers to begin assessing mortgage holders at risk of default effective immediately, according to Blacklock’s Reporter. “These risks can lead to more defaults and are particularly acute for borrowers with higher-risk mortgage products such as variable rate mortgages with fixed payments,” said Routledge in a regulatory notice. “Residential mortgage underwriting also faces the risk of fraud and misrepresentation.”Canada has not had a bank failure in 39 years. If not managed correctly, Routledge said this risk could lead to severe credit losses. Bankers were ordered to identify and address vulnerable accounts and begin testing to estimate potential losses. While he did not estimate the value of loans at risk, he singled out $369 million worth of variable rate fixed payment home loans as worrisome. He acknowledged high household debt, inflation and higher interest rates have led to real estate secured lending risks. “Many borrowers are already facing higher regular mortgage payments,” he said. “Others will face payment shock at renewal or sooner.”To be prepared, he said the regulatory notice would address “the heightened risk environment for real estate secured lending by reinforcing expectations on sound residential mortgage account and portfolio management practices.”Parliament passed Bill C-47 in June to amend the Canada Deposit Insurance Corporation Act to grant cabinet unlimited authority to guarantee depositors’ savings in case of a bank run. The order expires April 30.No reason was given for the amendment. “There are some extraordinary powers being conferred to the minister of finance,” said NDP MP Daniel Blaikie (Elmwood-Transcona, MB). When Blaikie asked why, Finance Canada Senior Director Rachel Grasham called it “a prudent thing to do.” “The purpose of that is to really allow the minister and the government to bring forward a temporary measure under extreme circumstances, just to help promote financial stability and safeguard public confidence in the system,” said Grasham. While Grasham found Bill C-47 justifiable, Blaikie asked her to describe the circumstances that could trigger the use of this power. “In the event there was instability, concerns around potential bank runs as we saw in the United States, the minister would be poised to be able to step in,” she said. Canada has not seen a bank run since the 1985 collapse of Canadian Commercial and Northland banks in Alberta, which cost the Deposit Insurance Corporation $608 million. Two other teetering banks — the Bank of British Columbia and Continental Bank — merged with larger rivals.The Senate Banking Committee (SBC) raised questions in December about bankers' sale of mortgages that have been labelled as causing a payment shock for borrowers.READ MORE: ‘Payment shock’ coming for variable rate mortgage renewalsAbout $246 billion of mortgages were sold with variable rates and fixed payments.The SBC said cabinet must “strengthen consumer protection and ensure financial institutions are offering safe mortgage products to Canadians and providing fair and reasonable relief measures to help those in financial distress.” Senators recommended reforms be included in Budget 2024.
Canadian Superintendent of Financial Institutions Peter Routledge issued a directive ordering bankers to begin assessing mortgage holders at risk of default effective immediately, according to Blacklock’s Reporter. “These risks can lead to more defaults and are particularly acute for borrowers with higher-risk mortgage products such as variable rate mortgages with fixed payments,” said Routledge in a regulatory notice. “Residential mortgage underwriting also faces the risk of fraud and misrepresentation.”Canada has not had a bank failure in 39 years. If not managed correctly, Routledge said this risk could lead to severe credit losses. Bankers were ordered to identify and address vulnerable accounts and begin testing to estimate potential losses. While he did not estimate the value of loans at risk, he singled out $369 million worth of variable rate fixed payment home loans as worrisome. He acknowledged high household debt, inflation and higher interest rates have led to real estate secured lending risks. “Many borrowers are already facing higher regular mortgage payments,” he said. “Others will face payment shock at renewal or sooner.”To be prepared, he said the regulatory notice would address “the heightened risk environment for real estate secured lending by reinforcing expectations on sound residential mortgage account and portfolio management practices.”Parliament passed Bill C-47 in June to amend the Canada Deposit Insurance Corporation Act to grant cabinet unlimited authority to guarantee depositors’ savings in case of a bank run. The order expires April 30.No reason was given for the amendment. “There are some extraordinary powers being conferred to the minister of finance,” said NDP MP Daniel Blaikie (Elmwood-Transcona, MB). When Blaikie asked why, Finance Canada Senior Director Rachel Grasham called it “a prudent thing to do.” “The purpose of that is to really allow the minister and the government to bring forward a temporary measure under extreme circumstances, just to help promote financial stability and safeguard public confidence in the system,” said Grasham. While Grasham found Bill C-47 justifiable, Blaikie asked her to describe the circumstances that could trigger the use of this power. “In the event there was instability, concerns around potential bank runs as we saw in the United States, the minister would be poised to be able to step in,” she said. Canada has not seen a bank run since the 1985 collapse of Canadian Commercial and Northland banks in Alberta, which cost the Deposit Insurance Corporation $608 million. Two other teetering banks — the Bank of British Columbia and Continental Bank — merged with larger rivals.The Senate Banking Committee (SBC) raised questions in December about bankers' sale of mortgages that have been labelled as causing a payment shock for borrowers.READ MORE: ‘Payment shock’ coming for variable rate mortgage renewalsAbout $246 billion of mortgages were sold with variable rates and fixed payments.The SBC said cabinet must “strengthen consumer protection and ensure financial institutions are offering safe mortgage products to Canadians and providing fair and reasonable relief measures to help those in financial distress.” Senators recommended reforms be included in Budget 2024.
