If Your Are In Financial Trouble. Talk to Your Lender!!

The Vancouver Sun published an article today about the rising unemployment in Canada coupled with the possibility of rising delinquency. Fortunately, CMHC and the lenders are willing to work with people (hopefully in advance of problems) to resolve their financial problems. This article puts a fine point on how solid our Canadian lenders have been, and why the sub-prime problem was primarily a US creation.

This is a reproduction of a Vancouver Sun article on March 28th, 2009. Particular author credits were not given on their site, but the work is entirely theirs. I am re-publishing it without permission but with full credit to them!

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Rising unemployment and falling real estate values inevitably increase the risk of mortgage defaults. Fortunately, a foreclosure remains a rare event in Canada: Both lenders and borrowers view it as a desperate measure of last resort.

But the recession is taking a toll on jobs. Canada’s unemployment rate rose to 7.7 per cent last month from 7.2 per cent in January, while the rate in British Columbia stands at 6.7 per cent, up from 6.1 per cent. Since the peak last October, Canada has lost 295,000 jobs.

Meanwhile, the average resale home price nationally has dropped by 9.2 per cent. That’s good news for buyers; not so good for homeowners who took out a big mortgage to buy a residential property during the real estate boom. Especially vulnerable are the rising numbers of homeowners who suddenly find their employment income at risk.

The federal government and Canada’s chartered banks hope to head off a wave of defaults by appealing to homeowners to approach their lenders before they find themselves in serious financial trouble. A foreclosure is not just an unhappy human story, it represents a loss for the banks and a potential policy challenge for Ottawa. Most mainstream lenders are willing to help their customers through a crisis by offering options such as deferred payments, extended amortizations and debt consolidation.

Canada Mortgage and Housing is expected to launch a campaign next week to inform the public that such options exist and to encourage homeowners in jeopardy to be proactive to protect their investment. CMHC and lenders realize that recessions are cyclical, home prices will recover and new jobs will be created. Besides, no one wins in a foreclosure, which can be costly for the banks and, with the resulting rise in the homeless population, politically damaging for all levels of government.

Canada’s preventive measures appear meek and mild compared with America’s aggressive $75-billion US mortgage relief plan that aims to help homeowners modify their loans, mainly by providing cash incentives to lenders to cut monthly payments. But each country’s circumstances are strikingly different. Mortgage delinquencies in the United States, where one in five mortgage holders is under water, jumped to 7.9 per cent of all loans last month. That excludes the 3.3 per cent of loans already in foreclosure.

In Canada, only 0.3 per cent of mortgages are in arrears.

Despite the relatively low risk of defaults, it makes sense for CMHC to put out the word that lenders are willing to be flexible on troubled mortgages.

It is likely that more Canadians will face financial pressures as the recession drags on and it is better for all involved, other than in the most extraordinary cases, that they stay in their homes.

In some hard-hit communities, banks are taking the initiative to contact customers to ask if they need help. Lenders might want to consider introducing that kind of customer service across the board to avoid problems before they happen.

Ultimately, it is up to individual homeowners, who best know the state of their own household finances, to recognize the warnings signs and seek relief from their lenders. With the encouragement of CMHC, the banks appear willing to play ball to prevent a U.S.-style mortgage meltdown in Canada. Communication and cooperation are key to helping mortgage holders get through this economic slowdown with a roof over their heads and equity in their homes.

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~ by merc359 on March 29, 2009.