COVID-19 and Economic Impacts

by Mortgage Professionals Canada | Mar 16, 2020
Summary of recent changes and announcements from government officials in reaction to the growing concerns about COVID-19

The COVID-19 crisis has escalated very quickly and with little warning. As governments struggle to contain the growth of infections to levels their health care systems can manage, individuals and businesses are advised to reduce their interactions with others as much as possible. Social Distancing has become the new best practice. Understandably, this is having significant economic impacts. Initially, the travel and tourism industry began to see a reduction of customers, but since social distancing began affecting behavior locally, small businesses across Canada are now seeing significant reductions in their revenues; restaurants and local bars, movie theatres, shopping malls, etc. As the crisis persists, businesses will have to rely much more on their lines of credit to maintain operations and payroll while revenues suffer. Fortunately, the joint Ministry of Finance, Bank of Canada and OSFI announcements on Friday introduced measures to assist.

Announcements by the Ministry of Finance, the Bank of Canada, and OSFI

  • Minister Morneau announced a new Business Credit Availability Program, adding $10 billion of additional support financing, through Business Development Bank of Canada and Export Development Canada, to support Canadian Businesses. Click here for more
  • The Bank of Canada lowered the overnight rate from 125 to 75 bps, to reduce the interest cost burden for businesses and consumers alike. The bank also increased its Government of Canada bond buyback program. Click here for more
  • OSFI reduced the Domestic Stability Buffer from 2.25% to 1%, thereby freeing up $300 Billion additional lending capacity for Domestic Systemically Important Banks (D-SIBS). Click here for more
All of these measures effectively increase the ability of lenders to lend, and for consumers and businesses to borrow through this lean economic period; all very prudent measures given the expected economic activity reductions. Hopefully, the growth of COVID-19 cases will soon begin to slow and confidence will return to the market. When consumers feel they can once again visit local businesses, the short term effect of the crisis should subside.

April 6 Stress Test Adjustments Suspended
In addition to the Friday announcements increasing market liquidity, OSFI also announced it is suspending all consultations, including those regarding changes to the proposed B-20 benchmark rate; the Minister of Finance also postponed the announced April 6th qualification change for insured mortgages. In short, until further notice, the Bank of Canada posted 5-year rate will continue to be used for mortgage qualification.

I spoke with a representative at OSFI this morning who expressed that all consultations are no longer a priority given current economic conditions. Understandably, Finance, the Bank of Canada, and OSFI are fully occupied given the circumstances. The postponement of the consultation practically extends the consultation period.

Contact Your Lenders to Discuss Borrower Difficulties and Options
Some MPC members may find their customers in need of assistance or adjustment to their mortgage product as a result of these unusual economic times. In this event, I urge you to contact your lenders directly. Many lenders have options available to assist those who find themselves in short term difficulty. I have been asked by some lenders to remind brokers that these supports exist. Whether the lender permits the borrower to skip a payment, defer a payment, or in some circumstances amend their amortization schedule, each lender will generally have some provision to assist when necessary. The industry will work together to help as needed.