Proposed Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances

I. Introduction

1. Consumers may experience periods of severe financial stress due to exceptional circumstances, such as the current combined effects of high household indebtedness, the rapid increases in interest rates, and the increased cost of living. These exceptional circumstances may reduce some consumers'^{Footnote 1}  ability to service their debts.
2. The Financial Consumer Agency of Canada (FCAC) has developed a Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances (Guideline) to set out its expectations for federally regulated financial institutions (FRFIs)^{Footnote 2}  to support consumers who are vulnerable to mortgage delinquency as a result of exceptional circumstances.
3. FCAC expects FRFIs to establish effective policies and procedures for providing support to consumers by proactively monitoring for and identifying early signs that consumers may be experiencing mortgage hardship,^{Footnote 3}  establishing criteria for offering mortgage relief measures, and ensuring those relief measures are available when appropriate.
4. FCAC expects FRFIs to pay particular attention to providing support to:
   1. 4.1 consumers whose payments on variable rate mortgages fluctuate with interest rates (variable payments) and who have seen their payments increase materially
   2. 4.2 consumers whose payments on variable rate mortgages are fixed and have had a materially larger portion (or all) of their payment covering the increased interest costs or for those who may be facing negative amortization^{Footnote 4} 
   3. 4.3 consumers with fixed rate mortgages reaching near-term maturity who may be facing a material increase in payments
5. This Guideline should be read in conjunction with all applicable legislation, regulations and guidance.

II. Key principles

6. In responding to consumers experiencing mortgage hardship, FCAC expects FRFIs to offer mortgage relief measures that adhere to the following principles:

Fairness

FRFIs should ensure all consumers are treated with a similar level of care and attention, having regard to their circumstances, including their financial needs.^{Footnote 5}

Appropriateness

FRFIs should ensure that mortgage relief measures and renewals are appropriate for consumers, having regard to their circumstances, including their financial needs.

Accessibility

FRFIs should proactively provide consumers with access to mortgage relief measures, having regard to their circumstances, including their financial needs.

III. Fairness

7. FRFIs are required to be fair and equitable in their dealings with consumers, including by offering similar mortgage relief measures to consumers with similar circumstances and needs.
8. FCAC expects FRFIs not to charge prepayment penalties when consumers with variable rate mortgages with fixed payments who have reached or are expected to reach their trigger rates^{Footnote 6}  make lump sum payments to avoid negative amortization.
9. FCAC expects FRFIs to waive internal fees or costs when activating mortgage relief measures that would otherwise be charged to consumers.
10. FRFIs must not take advantage^{Footnote 7}  of consumers. FCAC expects FRFIs to:
    1. 10.1 provide competitive rates for consumers facing renewal who may have difficulty adjusting their mortgage credit agreements or qualifying with other providers
    2. 10.2 ensure that no interest is charged on interest in cases where relief measures result in negative amortization
    3. 10.3 ensure that the credit scores of consumers are not negatively affected by the use of mortgage relief measures

IV. Appropriateness

11.  FCAC expects FRFIs to conduct an appropriateness assessment of the specific mortgage relief measures in alignment with the expectations set out in the Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks.
12. FRFIs that offer mortgage relief measures that would result in an extended amortization period should do so on a temporary basis, with consideration for the consumer’s ability to restore the amortization to the original period.
13. In the event that an extended amortization is the appropriate mortgage relief measure, FCAC expects FRFIs to develop a plan with consumers to restore amortization to the original period within a reasonable time frame. The plan should include an assessment and communication of the potential long-term negative financial implications on the consumer.
14. If an extended amortization period is an appropriate permanent solution for certain consumers, FRFIs must ensure that the total amortization length is reasonable.
15. FCAC expects that, prior to consumers providing their express consent to make use of mortgage relief measures, FRFIs will ensure the following information has been provided in a clear, simple manner and is not misleading:
    1. 15.1 the outstanding amount owing on the original mortgage credit agreement before the mortgage relief measure takes effect
    2. 15.2 the impact of the mortgage relief measure on the total cost of servicing the mortgage in dollars
    3. 15.3 the impact of the mortgage relief measure on the original amortization period
    4. 15.4 the new payment amount, due date and frequency
    5. 15.5 the new interest rate and type (e.g., fixed, variable)
    6. 15.6 the date on which the change will take effect
    7. 15.7 whether the consumer will be charged fees by a third party for changing the mortgage credit agreement

V. Accessibility

16. FCAC expects FRFIs to make their mortgage relief measures easily accessible to consumers.
17. FCAC expects FRFIs to proactively contact and provide information regarding mortgage relief measures to consumers so they can make timely and informed decisions.
18. FCAC expects FRFIs to ensure that information regarding mortgage relief measures is readily available to consumers over the phone, online and in person in a manner that meets consumers’ needs.
19. At no additional cost to consumers, FCAC expects FRFIs to:
    1. 19.1 provide reputable educational tools and resources to support sound financial decision-making
    2. 19.2 encourage consumers to seek advice from appropriate sources
    3. 19.3 direct consumers to reputable support networks for information and advice on financial hardship
20. FCAC expects FRFIs to ensure that their employees have been trained to apply the expectations outlined in this Guideline, with a specific focus on equipping and training:
    1. 20.1 employees who are responsible for mortgage loans, so these employees can monitor, identify and proactively contact consumers and discuss mortgage relief measures with them
    2. 20.2 front-line employees to provide appropriate advice and assistance to consumers regarding mortgage relief measures

VI. Administrative processes and controls

21. FCAC expects FRFIs to monitor their consumers for early signs of mortgage hardship and maintain a record of consumers who have been contacted.
22. FCAC expects FRFIs to record, track and periodically report to FCAC on any mortgage relief measures being used.
23. FCAC expects FRFIs to maintain detailed records on the implementation of their relevant policies and procedures so that these can be made available to FCAC upon request.