Banking Watchdog Warns Of Rising Mortgage Debt

MNP's TAKE: As the Canadian economy continues to slump and unemployment grips thousands of households across the country, it's no surprise to learn that many are struggling to keep up with the costs of day-to-day living, let alone manage debt. But with interest rates sitting at rock bottom prices, many consumers haven't halted or even slowed their spending. Using credit to keep up with a lifestyle can be a dangerous game to play, as many find themselves using one piece of credit to pay the minimum payments on the other and round and round it goes until all debt is maxed and the consumer finds themselves in a cycle of debt that's very difficult to get out of.

When we take the fact that owning a home is a financial goal for many households, it's easy to see that the Canadian housing market poses the same problems - on a much larger scale. Thousands of Canadians are applying for (and in some cases, being granted) mortgages on the assumption things will turn around and they will be able to manage the ongoing mortgage payments. But what happens if they can't? 

The best way to ensure that the level of debt you are carrying is aligned with the amount coming into your household is to take the time to sit down, evaluate your personal or household finances and develop a comprehensive long-term plan. A solid understanding of your household income and expenses is essential, especially before making large financial commitments such as taking out mortgages, purchasing new vehicles or giving / lending lump sums of money. A detailed budget will help you decide just how much debt you can undertake before that debt starts to take over your life. 

If debt has already started to take hold and you feel trapped, you have options. Depending on your unique position, there may be several options available to help get you on track to achieving a fresh financial start so you can continue working towards your long-term fina ncial goals. Contact Grant Bazian, CIRP, LIT, President of MNP Ltd. at 778.374.2108 or [email protected] for information on what debt solutions are available to help you.

BY BRENT JANG FROM THE GLOBE AND MAIL 

The country’s banking watchdog says lenders need to be more vigilant than ever as mortgage debt rises.

“That growth in mortgage debt is particularly evident among highly indebted households – households that have less capacity to cope financially with a loss of income or an increase in interest rates,” said Jeremy Rudin, Canada’s superintendent of financial institutions.

Mr. Rudin said it is the job of the regulator that he heads, the Office of the Superintendent of Financial Institutions (OSFI), “to get out in front of the risks” encountered by lenders and mortgage insurers, which could suffer significant losses should there be a downturn. “Recognizing these elevated financial risks and vulnerabilities facing the Canadian financial institutions, we at OSFI issued a letter to the industry in July of this year.”

“And in that letter, we indicated that we were tightening our expectations and increasing scrutiny around residential mortgage underwriting practices,” he said in a speech Monday at the national conference for Mortgage Professionals Canada, which represents mortgage brokers.

In October, Canada Mortgage and Housing Corp. issued its “red warning” for the country’s real estate market as a whole. The federal agency cautioned that with many suburbs near Vancouver and Toronto already seeing prices spike, pressure is spreading even farther out as some buyers search for homes in bedroom communities such as Abbotsford, B.C., and Barrie, Ont.

Analysts expect British Columbia and Ontario to account for about two-thirds of this year’s Canadian sales of existing residential properties.

“The recent uptick in mortgage rates should serve as a reminder that low rates are not a given, especially over longer periods of time,” Mr. Rudin said.

“Sound underwriting has always been important, but it has never been as important as it is now. Virtually everyone who is involved in mortgage origination in Canada has a role to play in supporting sound underwriting practices, the sound practices that we require of the federally regulated institutions.”

In instances when some housing markets do experience price declines, there haven’t been severe drops, he said.

“Lenders might be led to believe that weak underwriting standards will be mitigated by ever-rising collateral values. Our view is the opposite,” Mr. Rudin said. “In these circumstances, prudent lenders put less emphasis on collateral values, not more.”

During a news conference after his Vancouver speech, Mr. Rudin said it is also important for lenders to verify a borrower’s income and employment.

“These can still be reasonable risks. What we’re looking for is real effort – reasonable but nonetheless – to verifying income and employment in those more challenging circumstances, whether they’re domestic or foreign,” he said.

The B.C. government implemented a 15-per-cent tax on foreign buyers in the Vancouver region, starting in August.

While prices in the Vancouver region have fallen recently, the market remains expensive. The price of detached houses sold recently within the City of Vancouver averaged more than $2.6million, or double the average price for detached properties in the City of Toronto.

In June, the federal government established a working group to recommend ways to make housing more affordable in Canada’s two most expensive real estate markets. For various property types in the Greater Toronto Area, the price averaged a record $762,975 in October, up 20.9 per cent from a year earlier.

In Greater Vancouver’s softening market, the average p rice for detached houses, condos and townhomes sold in October dropped to $891,705, or a 5.9-percent decline from the same month in 2015, according to the Canadian Real Estate Association.

This article was written by Brent Jang from The Globe And Mail and was legally licensed through the NewsCred publisher network.