FCAC Issues Guideline on Measures to be Taken by FRFIs for Existing Mortgages at Risk of Default
On July 5, 2023 the Financial Consumer Agency of Canada (“FCAC”) issued its Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances (“Guideline”) outlining its expectations related to the measures to be taken by Federally Regulated Financial Institutions (“FRFIs”) for residential mortgages on principal residences held by consumers who are at risk of defaulting on their obligations due to severe financial distress caused by current economic conditions. For more information on the consultation related to this Guideline, please refer to our blogpost FCAC issues proposed guideline on existing mortgage loans for consumers vulnerable to mortgage delinquency.
Help for “consumers at risk”
The FCAC deems “consumers at risk” to be natural persons who have experienced or who are at risk of experiencing significant increases in their mortgage payments as a result of holding variable-rate mortgages with fluctuating interest rates, variable-rate mortgages with fixed payments potentially resulting in negative amortization, or holding fixed-rate mortgages that are coming to maturity.
FCAC expects FRFIs to develop policies based on the key principles of Fairness, Appropriateness and Accessibility, that will consider all available mortgage relief measures, such as waiving prepayment penalties, waiving internal fees and costs, not charging interest on interest, extending amortization periods and which will serve, at a minimum, to :
- proactively identify early signs of financial stress on their customers;
- identify the criteria for offering mortgage relief measures to distressed customers;
- ensure that appropriate relief measures are made available to distressed customers based on an assessment of appropriateness; and
- ensure customers’ express consent by providing the appropriate disclosure of information, communicated in a manner that is clear, simple and not misleading.
Applying the Fairness principle
In applying the Fairness principle, FRFI policies will have to require fair, equitable and to the extent possible, consistent dealings with their at-risk customers. This, it says “includes offering similar mortgage relief measures to consumers at risk who have similar circumstances and needs.”
FRFIs will be expected to offer appropriate, individualized and temporary mortgage relief measures to their customers as soon as possible, once a joint determination has been made by the FRFI and the customer that the mortgage is at risk of default. Such temporary relief measures may involve waiving prepayment penalties if a lump sum payment by the customer would avoid negative amortization, or if the customer sells their principal residence. They may also include the waiver of fees and charges, that would otherwise be payable, for a period of up to 12 months. Moreover, in the circumstances where certain measures give rise to negative amortization, FRFIs would be expected, also for up to twelve months, not to charge interest on interest that has been capitalized.
The FCAC has also stated it expects that those customers who have availed themselves of certain relief measures will not see a late payment or delinquency reflected on their credit report if a late payment or delinquency accords with the new mortgage payment arrangement with the FRFI.
Applying the Appropriateness principle
FRFI policies will also have to require that appropriateness assessments, in line with its Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks, be conducted when mortgage relief measures are considered for their customers at risk.
Any relief measure extending a consumer’s amortization period must be for the briefest period possible and must involve the creation of a plan to restore the amortization to the original period. And, when the appropriate relief measure involves a consumer-led sale, the FRFI must discuss the various factors for consideration when selling a principal residence.
Applying the Accessibility principle
FCAC expects make mortgage relief measures to be easily accessible to consumers at risk. To meet this expectation, it will be incumbent upon FRFIs to:
- proactively contact consumers at risk regarding mortgage relief measures available to them so they can make timely decisions;
- make information regarding the relief measures available over the phone, online and in person
- provide tools and resources to support sound financial decision-making to consumers who may be at risk;
- encourage consumers at risk to seek information and advice from appropriate sources; and
- direct consumers at risk to reputable support networks for information and advice on financial hardship.
FRFIs will be required to ensure that their employees who offer, sell or service mortgage loans are trained to identify and proactively contact consumers at risk to discuss mortgage relief measures with them and to provide them with related information and assistance.
FRFIs will be expected to monitor their customers for early signs of severe financial stress. They will also be required to maintain accurate records of customers contacted in connection with the relief measure and capture information about the relief measures granted. FRFIs must also be prepared to report on the implementation of this Guideline and provide their records related to the mortgage relief measures, upon request by the FCAC.
FCAC invites questions relating to its Guideline to be directed to [email protected] or mailed to:
Financial Consumer Agency of Canada
Attention: Deputy Commissioner, Supervision and Enforcement Branch
427 Laurier Ave West, 5th Floor
Ottawa, ON K1R 1B9
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 Negative amortization occurs when mortgage payments are insufficient to cover the interest costs on a mortgage debt, thereby increasing the total amount owing.
 The information that must be disclosed to a consumer to obtain their consent to a relief measure includes: outstanding amount owing on original mortgage; total cost (in dollars) of servicing mortgage resulting from relief measure; remaining amortization period after relief measures take effect; new payment amount, due date and frequency; new interest rate and type (e.g., fixed, variable); and date when changes take effect.