Date Posted: December 13, 2023
The Canadian government recently introduced the Canadian Mortgage Charter to address challenges faced by struggling mortgage borrowers. However, the response from industry experts has been largely critical, with some dismissing it as "nonsense" and "political theatre."
The Canadian Mortgage Charter
Canadians can expect banks to:
Critics argue that the charter doesn't bring much new to the table, merely repackaging existing measures. The Mortgage Professionals Canada association stated that the charter mostly codifies pre-existing measures to protect mortgage holders facing financial pressure due to higher rates.
To address misconceptions, there were no changes to the mortgage stress test for insured or uninsured mortgages. The confusion arose from the inclusion of a provision stating that insured mortgage holders wouldn't need to re-qualify when switching lenders, a practice already in place.
The difficulty the industry faces with the Mortgage Charter is that it has no legal backing; it's a set of recommendations rather than enforceable regulations. Critics argue that its voluntary nature, with no requirement for big banks to participate, in turn, limiting its effectiveness.
Criticism extends to specific principles, such as the idea that lenders could waive prepayment penalties, seen by some as unlikely given contractual obligations. The guideline advising lenders to contact borrowers 4-6 months before renewal is also criticized as many lenders already follow this practice.
Moreover, the lack of a clear definition for "vulnerable borrower" raises concerns. While the charter aims to set standards for how lenders assist such borrowers, the absence of a specific definition leaves room for interpretation.
In summary, industry experts view the Canadian Mortgage Charter skeptically, considering it more symbolic than impactful. They highlight existing industry practices and question the charter's voluntary nature and lack of legal backing, expressing doubts about its effectiveness in addressing mortgage-related challenges.
If you are experiencing any problems with your mortgage, remember to contact your broker to discuss your options.