More than one million Canadians lost their jobs in March, according to Statistics Canada, and the employment rate fell 3.3 percentage points to 58.5%. That’s the lowest employment rate since April 1997. 1 in 3 Canadians polled by Angus Reid said their household could miss a rent or mortgage payment this month or will have to start borrowing money. A recent poll shows 2 in 3 Canadian small businesses polled responded at best they have 3 months before they close their doors permanently regardless of the Government assistance programs, which would significantly impact the Canadians longer term since small business is in large part a heartbeat of our economy.
In an open letter sent to multiple Members of Parliament (MPs) and Members of Provincial Parliament (MPPs) on March 23rd, John Bargis, founder of the Coalition of Independent Mortgage Brokers of Canada (CIMBC) and owner of Mortgage Edge is advocating for more action from both federal and provincial governments.
Canada’s Finance Minister Bill Morneau announced that the government is allowing mortgage lenders to pool previously uninsured mortgages into National Housing Act Mortgage Backed Securities (NHA MBS) for Canada Mortgage and Housing Corporation (CMCH) to purchase through the newly launched Insured Mortgage Purchase Program (IMPP). This to help create more liquidity and support continued lending practices to an extent, since what we’re seeing is the expected broad-based increase in lender policy changes out of concern that a recession will almost certainly accentuate the effects of COVID-19.
“Another helpful option much more visible to the average Canadian would have been to allow for a 40-year amortization during this extreme time of need.” Bargis wrote in the letter. While this attempt to allow for liquidity is a necessary step, he says it’s unfortunately not enough. He questioned how useful this temporary relief program is if scores of Canadians are losing their jobs and lenders can’t extend credit to those out of work, or those who have suffered a significant reduction to their income.
Provincial governments are also stepping up to address concerns, wrote Bargis. He referenced Ontario’s Ford government who announced that tenants will not face eviction during these times if they can’t make rent. However, Bargis says there needs to be a relief plan for landlords who are still required to make their mortgage payments on rental properties.
“This is very concerning and something that will have a devastating financial impact on many property investors in Toronto,” he wrote. “Think of the many who mortgaged their homes to purchase rental units or properties, and the negative impact on the real estate market if they default their payments and are forced to sell in large numbers.”
Bargis said this would lead to a flood of properties on the market, which would naturally drive valuations down significantly. Taking the time to properly think through effective policy is vital, he said, as Canadians have already and will continue to suffer financial devastation.
Bargis ended the letter with a list of suggestions for government officials to consider:
•The automatic allowance for the capitalization of mortgage payments to principal, until the end of the year. Ultimately, this would increase amortization periods on mortgages and could help accommodate deferred payments and eliminate the tedious application process.
•Lenders should not be permitted to close any lines as credit facilities are critical to survival. Payments should also be renegotiated to a more reasonable and affordable level.
•Equifax and Transunion should freeze on reporting all credit facilities for at least 6 months. If reporting agencies continue to report missed payments, access to credit will become very difficult when things are back on track, which would likely prolong financial hardships.
•It should be clear to tenants that any postponed rental payments are a deferral, as the mortgagor still must make their capitalized payments whether the mortgage is commercial or personal. If these mortgages default and lenders exercise their rights under the security of a property such as a rental apartment building, he says the effects would be devastating.
•While the bond yields continue to drop, the cost of borrowing has not followed suit due to lender liquidity concerns. The federal government needs to do more to allow for these liquidity challenges to subside.
•Canadians should be allowed to access their RRSP funds tax free, without having to worry about replacing these funds.
•A temporary shut down of the stock market should be considered, as many large funds are taking advantage of the hardships of the average Canadian, who has seen their life savings significantly diminished.
While Bargis hopes his letter will spur action, he said things are moving so quickly that it’s going to be understandably difficult for the government to implement preventative policy now without casualties.
Since Bargis’ open letter was sent, we have seen further announcements in government aid packages with likely more to follow. But more needs to be done if we have any hope of limiting the devastating impact of a full-blown recession that undoubtedly could lead to record insolvencies, drastic drops in real estate valuations, continued job losses, and the evaporation of more wealth.
Most recently, he received a response from the office of Canada’s opposition leader Andrew Scheer. The email response said Bargis’ correspondence has been forwarded to the official opposition shadow minister for health, Matt Jeneroux, for consideration.
MBN
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