Click here to join our mailing list to receive the latest news and updates as they happen. Unsubscribe any time.
FCAC guidelines

Canada’s financial consumer watchdog unveils guidelines to support at-risk mortgage borrowers

The country’s financial consumer watchdog today unveiled new guidelines urging financial institutions to provide support to mortgage holders who are facing “severe financial stress” and are at-risk of default.

The new guidelines were issued by the Financial Consumer Agency of Canada (FCAC) as its research shows a growing number of Canadians are struggling to keep up with their financial commitments.

But rather than listing universal measures that it expects federally regulated financial institutions (FRFIs) to adopt, the guidelines instead encourage “fair and consistent approaches” when offering support to at-risk clients.

That includes asking those institutions to proactively work with their mortgage consumers and “provide appropriate and tailored relief measures” for those at risk of defaulting on their primary residence.

“FCAC’s guideline will help protect Canadians with mortgages who are experiencing severe financial stress and make sure they are treated fairly and consistently in their dealings with their financial institutions,” FCAC commissioner Judith Robertson said in a statement.

She added that FCAC recognizes the “positive actions that many financial institutions are taking” to support their customers, and that today’s guidelines “build on these practices.”

FCAC offers examples of support measures

In its Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances document, FCAC outlined some support measures it expects financial institutions to offer to struggling mortgage consumers, particularly those with fixed-payment variable-rate mortgages—many of whom have reached their trigger rate and are now facing extended or negative amortizations—and those with fixed-rate mortgages who are renewing at sharply higher interest rates.

FCAC said these measures could include:

  • waiving prepayment penalties
  • waiving internal fees and costs
  • Not charging interest on interest
  • Extending amortizations

In the cases of renewals, FCAC said it expects financial institutions to “not offer a less advantageous rate based on the consumer’s inability to adjust their mortgage credit agreement or qualify with other lenders.”

And once relief measures are implemented, the agency said that borrower’s credit report shouldn’t reflect a late payment or delinquency, so long as the late payment or delinquency is in accordance with any new payment agreement.

However, the agency also said it recognizes that individual FRFIs “may establish and implement its policies and procedures to align with the nature, size and complexity of its business, distribution channels, and products and services.”

Data point to growing challenges for Canadian homeowners

The guidelines come as research points to growing numbers of Canadian mortgage holders who are struggling to keep up with their financial commitments.

In research conducted between August 2020 and December 2022, FCAC found homeowners are increasingly needing to borrow to meet their daily needs, with that percentage rising to nearly 40% in December 2022 from 27.3% in 2020.

It also said just one third of mortgage holders report having no difficulty meeting their financial commitments, down by more than 22 percentage points since the start of the survey period.

Additionally, the survey found nearly a third (31.9%) of homeowners with a mortgage are spending more money than they earn, up from roughly 20% in early 2020.