FICOM winding down special treatement to banks offering deferrals
September 8, 2020 | Posted by: Patrick Mulhern
Banking watchdog winding down special treatment for COVID-19 mortgage deferrals
Will no longer let lenders treat deferred loans as if they are still being paid back
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OSFI said the decision reflects how the relief it granted during the pandemic was temporary. Photo by Peter J. Thompson/National Post files
A federal financial regulator announced Mondayit is winding down COVID-19-related relief for banks offering deferred mortgage payments, a move the watchdog says comes as lenders are in a better spot to start offering “business-as-usual alternatives” again to cash-strapped customers.
The Office of the Superintendent of Financial Institutions (OSFI) has allowed federally regulated lenders during the coronavirus pandemic to treat loans on which the payments are being deferred as performing, or still being paid back.
This special treatment, which meant capital requirements for banks wouldn’t rise because of deferrals, was allowed for up to a maximum of six months.However, OSFI said Monday that it is phasing out the special deferral treatment.
“While the special capital treatment and regulatory flexibility related to payment deferrals was warranted at the onset of COVID-19, as both lenders and borrowers adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, banks are now in a better position to employ their business-as-usual alternatives to support troubled borrowers,” the regulator said in a letter to banks.
OSFI now says that loans granted payment deferrals before Aug. 31 are still eligible for six months of the special treatment, but those granted after Aug. 30 and on or before Sept. 30 will be eligible for only up to three months. Any deferrals after Sept. 30 will not be eligible, the regulator said.
The tweaks by OSFI come after more than 760,000 Canadians have deferred or skipped a mortgage payment during the pandemic, which is about 16 per cent of the number of mortgages in bank portfolios, according to the Canadian Bankers Association.
OSFI’s changes also follow most of Canada’s biggest banks reporting last week better-than-anticipated earnings for their fiscal third quarters. One of the reasons for the improved financial results for the three months ended July 31 was that the lenders set aside less cash for possible loan losses.
There are indications as well that most customers who stop deferring payments will start making them again.
“Banks reported early experience from borrowers coming off of deferral, whereby 90 per cent and above were current,” National Bank Financial analyst Gabriel Dechaine wrote in a recent note to clients.