It is estimated 780,000 Canadian homeowners chose to defer their mortgage payments when COVID-19 forced businesses to close and workers were laid off.
For many, the end of the six-month deferral program is looming, says James Laird, co-founder of Ratehub.ca and president of CanWise Financial mortgage brokerage.
“As the pandemic took hold, the banking and lending community took immediate action to prevent a rush of defaults as the economy shut down. This was an impressive and appropriate response. Now that things are reopening and we have a better understanding of the impact, they are now appropriately asking those who deferred their mortgage to start making payments again,” says Laird. “As the economy continues to reopen and those whose income was disrupted return to work, this group should be able to resume making their mortgage payments again.”
Laird says, at the beginning of the pandemic, lenders across the country allowed anyone to defer their mortgage without any due diligence to see if they really required it, an observation supported by Phil Soper, president and CEO of Royal LePage.
“In my discussions with mortgage insurers and banks, the number of deferrals was actually lower than they anticipated at first, that’s the first point,” says Soper. “Secondly, they believe that a significant number of the people who requested it, did so out of an abundance of caution as opposed to being in a true crisis situation.”
New deferral requests will receive more scrutiny, says Laird.
“Now lenders are doing more due diligence on those requesting continued deferral and are only approving those who really need it,” he says. “This on its own will reduce the number of deferred mortgages dramatically.”
Even so, Soper expects there will be defaults on some mortgages.
“I believe overall it will have some impact and this will be the cold shower that will cool the market off in the final months of the year,” he says. “The number of people who are unable to meet their obligations under their mortgages will rise, but remember, defaults were at .24 of one percent — that’s one-quarter of one percent coming into the crisis, which I believe is the lowest in the developed world, probably lowest in the world. The Bank of Canada has suggested that number could double, which would still make us dramatically lower than the United States before the crisis.
“We have a tightly managed mortgage book across the major financial institutions in this country and defaults are very, very low, so to put it another way, we have room for a bump in defaults on mortgages before it would harm the economy in a serious way.”
Laird believes lenders will work with mortgage holders as best they can.
“Canadians who are at serious risk of default would still be deferring their mortgage payment and lenders will be working hard to remediate the situation,” he says. “If the household finances cannot support resuming mortgage payments again, then default becomes a possibility. We will only learn about the number of Canadian households in this situation in the months ahead.”
Copyright Postmedia Network Inc., 2020