Help; If you are falling behind with your mortgage

Help for Financially Strapped Homeowners

The percentage of mortgage arrears in Canada stands at 0.33 per cent – about one-third of one per cent – and it’s rising. Although it seems like a very small number, it’s currently at the highest rate since 2003 and as the recession continues, and it’s likely to rise during the coming year.

Overall household debt went up by 2.1 per cent during the fourth quarter of 2008, but personal disposable income only rose by 0.37 per cent. The number of consumer bankruptcies in Canada was up 13.5 per cent last year. Benjamin Tal, senior economist with CIBC World Markets, says, "With the unemployment rate still rising, look for the number of bankruptcies to continue to rise. Note that the current bankruptcy rate (2.7 out of 1,000 Canadians) is back to the rate seen in 2003."

Tal says that despite the "ultra expensive real estate prices in British Columbia", the mortgage arrears rate there is one of the lowest in the country. It’s highest in Atlantic Canada at 0.42 per cent. But Tal says the arrears rate in Alberta is rising quickly and "probably will lead the nation in the coming few months."

Bank of Canada Governor Mark Carney recently said in a television interview that he’s not concerned about a U.S.-type mortgage crisis happening in Canada, because high-ratio loans in Canada are backed by the government. He said, "We have a circuit-breaker in Canada."

But with mortgage arrears on the rise, Canada Mortgage and Housing Corp. (CMHC) has launched a campaign aimed at helping consumers facing a mortgage payment crunch. Genworth Financial Canada, which along with CMHC offers mortgage insurance, has also stepped up its existing Homeowner Assistance Program.

"CMHC has a long tradition of offering mortgage tools to lenders to help them assist homeowners whose financial circumstances have changed," says CMHC vice-president of insurance underwriting Mark McInnis. "We want to remind people that the best course of action is to speak to their lenders at the first sign of financial difficulty. With early intervention, co-operation and a well-executed plan, you can work together with your lender to find a solution."

Among the possible solutions are offering a short-term payment deferral, extending the amortization period of a mortgage to lower monthly mortgage payments, adding any missed mortgage payments to the mortgage balance and spreading them out over the remaining repayment period, or offering special payment arrangements depending on the needs of the homeowners.

Genworth has operated its Homeowner Assistance Program since 1995. The company is also hoping that homeowners will recognize that they are trouble early, and begin addressing the issue. The Homeowner Assistance Evaluator is an online tool that helps consumers assess their financial situation and provides potential solutions.

Genworth’s website also includes video testimonials and case studies of how different mortgage problems have been resolved. For example, in one instance a borrower’s husband was diagnosed with Parkinson’s disease and was unable to work. Since he was self-employed, there were no disability or income replacement benefits. The property was worth less than the mortgage balance, and although the borrower wanted to stay in the home, she was willing to sell it if their financial position didn’t improve.

Genworth and the lender worked out a deal where the amortization period of the mortgage was temporarily extended to 40 years for the remaining term, and it allowed the borrower to make partial payments, with Genworth paying the difference for six months. That gave the borrower’s spouse time to file for government disability, and the homeowners were able to keep the house.

Another online resource for those who are concerned about their finances is the Industry Canada Take Charge of Your Debts site. It includes sections on the warning signs of debt, "last resort" options, information about collection agencies and credit repair tips.

If you do decide to contact your lender about your mortgage payment issues, CMHC recommends that you prepare a detailed list of your financial obligations including any credit cards, loans, household bills with the amounts owing and their due dates. You should also include information about your current income, savings accounts, investments, and any other assets, says CMHC.

You should also keep your lender apprised of any changes that happen that would impact your financial situation.

Besides the downturn in the economy and the resulting job losses, people can get in financial trouble because of a variety of issues, including illness and marital separation. Each individual case is different but each one may have a solution if you can address the issue early. Don’t let your money problems get you down – just get busy and start working to solve the problem.

A big hat tip to the fine gentlemen over at Tridac mortgages for bringing this to my attention. Feel free to give Chris or Arnold Molder a call at (416) 461-0204