I made a very important decision before writing today’s blog.

Rarely do I actually plan what I write, you know.  I just sit down and start typing as I feel that’s where the most honest and transparent posts come from.

But today, I broke that rule.

Today, I came into this blog post with a goal:

Only register a 5 out of 10 on the Cynicism Meter.

Do you think I can do that?

Some of you have absolutely no idea what the “Canadian Mortgage Charter” is, and others know, and don’t care.

Many of you know, just from the title – and the fact that this was rolled out by the Liberal government (who I have been known not to love…) and former journalist Chyrstia Freeland (who now is in charge of the country’s finances…), that I’m going to find something not to like here.

But it’s not that I go searching for things not to like when it concerns our Prime Minister’s office.  I don’t wear a party colour.  I don’t play favourties.  I just take a look through the periscope every so often and decide if I like what I see.

So let me start today with something cynical and then I’ll try to roll it back from there, okay?

I’m going to use a CBC article about the new Canadian Mortgage Charter for reference:

“The New Canadian Mortgage Charter Explained”
CBC News
November 23rd, 2023

And to start, I’d like to highlight one section that can be found right in the middle of the article.

This basically tells us all we need to know, right at the start:

Is The Canadian Mortgage Charter a law?

No. The Canadian Mortgage Charter [CMC] is not a law and there are no plans to pass legislation enshrining it in law.

Right.

So then why all the fuss?

And what the actual eff are we talking about here?

In the federal Liberal government’s “Fall Economic Statement,” they included something new and exciting: it’s called a “Canadian Mortgage Charter.”

This was announced in November and it sort of slipped through the cracks, in my opinion.  A few articles appeared in the media but there wasn’t nearly as much made of this as I thought there should be.

Now, why did I think there should be much made of this?

Was it because the government was looking to help borrowers in a time of need?

In theory, yes.

But here’s where I’ll try to save my cynicism.  At least, until the end.

When announcing the new Charter, Finance Minister, Chrystia Freeland said:.

“I really recognize that with interest rates having gone up very quickly, there are many, many Canadians who are concerned about their mortgages going up. They are concerned about being able to afford to stay in their own homes.  What we’re saying today is we understand this is a challenging situation and we are here to help.”

Wow, that’s great!

The government wants to help Canadians with their affordability!

But, didn’t we learn at the onset that this “Charter” isn’t law?  And that there are no plans to pass legislation on enshrining it as law?

Correct.

From the CBC article:

Is The Canadian Mortgage Charter a law?

No. The Canadian Mortgage Charter [CMC] is not a law and there are no plans to pass legislation enshrining it in law.

A Department of Finance official speaking on background told CBC News the best way to think of the charter is as a list of “rules and expectations” banks are expected to follow.

Most of the rules in the charter are based on the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, published by the Financial Consumer Agency of Canada (FCAC) in July.

The only place the CMC rules have been or will be published, the official said, is in the Fall Economic Statement.

Right.

So these are “rules and expectations,” then?

As in, the government expects TD, CIBC, Royal, Scotia, BMO, and every other lender in the country to abide by them?

It would seem so.

Now, what were the “guidelines” that were noted in the Charter?

Here’s where it gets really interesting.  Let’s go through them one at a time and I’ll provide you with my honest (not cynical…) take on them.

1.  Allow temporary extensions on the amortization period for mortgage holders.

When a borrower is over their allotted amortization schedule, a bank might provide financial relief by extending the amortization period.

Let’s say that a borrower has a 25-year, variable-rate mortgage, and the interest rates increase.  If the borrower is having trouble with the payments, the bank could extend the amortization to 30 years, 35 years, or more.

This guideline suggests that banks should allow the borrower to keep that extended amortization period, but we don’t know if this is for a month, a year, or through an actual renewal.

2.  Waive fees and costs that would have otherwise been charged for mortgage relief measures.

Sure sounds nice!

But do banks routinely waive fees?

Sorry.  I said I wouldn’t be cynical.

In this case, the guideline suggests that when a bank provides mortgage relief measures, the bank should also waive assocaiated fees.

I can foresee a situation where the word “fair” is used here, ie. the borrower defaults, the bank forces the sale – so the borrower is losing his or her home, and the borrower says, “It’s not fair that I also have to pay a fee to discharge the mortgage, when I’m losing my home.”

To that, I would suggest that the bank might say, “This isn’t how life works,” and expect the borrower to adhere to the contract that was signed.

This “guideline” is interesting because it’s essentially asking the banks to absorb the losses!

Unless, of course, the government intends to pay the banks on the borrowers’ behalf?

The irony is – I can see a situation where a savvy borrower could game the system.  Let’s say that the banks are forced or encouraged to waive mortgage break fees for distressed borrowers.  Then couldn’t a borrower locked into a 7% rate break his or her mortgage when rates are lower – with the fees waived, and then go obtain a lower mortgage?

This one wasn’t very well thought through, but the idea of “banks waiving fees” sounds like some pie-in-the-sky thinking.

3.  Exempt insured mortgage holders from re-qualifying under the stress test when switching lenders at the time of a mortgage renewal.

This isn’t a bad idea and it could make some sense, but it risks cherrypicking who should be stress-tested, and who shoudln’t be.

Consider that when you obtain a mortgage, you need to be qualified at the “stress-tested” level, or 2% higher than current rates.  When you go to renew your mortgage, you often aren’t stress-tested when you stay with the same lender, but you are stress-tested when you switch lenders.

This guideline would allow the borrower to avoid the stress-test even if he or she switches lenders.

But why is this a good thing?

Wasn’t the stress-test there for a reason?

Isn’t this the government undermining the CMHC in the name of helping consumers?

4.  Require banks to reach out to homeowners four to six months in advance of their mortgage renewal to inform them of affordability options.

Typically, banks will contact borrowers 90 days before mortgage renewal, so this isn’t a bad idea.

However, it’s a slippery slope when we start allowing the government to tell private institutions how to run their day-to-day operations.

I can’t see why a bank reaching out sooner is a bad thing, but I don’t know why this is one bullet-point out of six in the holy “charter.”

5.  Allow borrowers to make lump sum payments to avoid negative amortization or sell their principal residence without incurring prepayment penalties.

This makes absolutely zero sense.

It shows how little common sense went into this “charter” and how quickly it was rushed out if we can sit here and poke gaping holes in it.

Just read the above one more time, please.

Now again.

Borrowers have negative amortizations because they couldn’t afford their payments to begin with.

So how in the $%&@ are they going to make “lump sum payments?”

We’re going to “allow” this, eh?

Why not “allow” them to fly to the moon too?

If a borrower can’t afford his or her monthly payments and has to extend the amortization period in the name of relief – to the point of almost being negative, where do the folks who wrote this “charter” think the borrower will find the money for a lump sum payment?

6.  Waive interest on interest when mortgage relief measures result in mortgage payments that fail to cover interest payments on a loan.

Sure, why not?

Ask the bank give up more money.  You get 0% of the things you don’t ask for, right?

I’m being cynical, aren’t I?

In fact, if I read back at the last few sections, I kinda dropped the ball here, right?

Well, I can’t help it!

These “guidelines” are merely the government asking the bank to make less money.

Again, the note in the CBC article from a government insider was that these were “‘rules and expectations’ the banks are expected to follow.”

Is “interest on interest” egregious?  Yeah, maybe.  But why are we having this conversation now?

Alright, I tried not to be cynical, but here goes.

This entire “charter” stinks of politicking.

If the best idea that the government has is to ask the banks to stop making so much money then there’s something seriously wrong here.

But you know what?

I have a theory.  It’s a bit of a conspiracy theory here, so I’ll give you a moment while you put on your tinfoil hat, just like mine.

Ready?

I believe that the Liberal government, who some would argue made this mess – or at least contributed to it, are trying to find a way out of this.  That is, at least to avoid being the “bad guy” in the eyes of Canadians, who are constituents, and voters.

Whether or not the government thought the banks would bend over and take this, isn’t the point.

If the government launches this “charter” and says that banks need to abide by it – in the name of helping Canadians in need, and the banks say  “NO,” then the banks become the bad guys.

And who is the good guy or gal?

Chrystia Freeland and the rest of the gang!

They tried!

Hey, everybody, they tried!  They had a plan!  A great plan, too!  They asked the banks to waive fees, limit interest, and even allow people to make lump sum payments with money they don’t have!  But the banks wouldn’t do it because the banks are evil, just like the grocery stores…

This stinks.

I’m not stupid, and neither are the folks reading this.

Maybe 95% of the population doesn’t read the news, doesn’t care what’s going on in the country, and would never express interest in a policy announcement like this one, let alone question it.  But I can’t honestly believe that the good folks in Ottawa thought this would fly.  I can’t.

Ask the banks to take a high hard one.  Uh-huh.

And what’s the response been out there so far?

Laughter!

Utter comedy!

Every person I have spoken to in the lending world has smiled when I asked them about this.  Even those I spoke to on the phone; I could feel their shit-eating grins on the other end.

Look, I’m a cynic, not a monster.  I would love to see Canadians who are struggling with their mortgage payments find relief!  Who wouldn’t?  But this “Charter” is silly.  It’s not real.  It’s just politics…