Details On The Proposed Mortgage Code of Conduct

By Mika Takashi Mar 30, 2023

The Canadian government has recently introduced a Mortgage Code of Conduct in the 2023 Federal Budget, aiming to enhance transparency and fairness in the mortgage market regulations. This new code of conduct addresses various aspects of the mortgage lending process, such as borrower education, lender responsibilities, and complaint resolution procedures. It’s also aimed an ensuring that Canadians get equitable access to relief from penalties and fees and is particularly targeted at helping those suffering from highly elevated payments on variable rate mortgages.

While some experts laud the initiative for its potential benefits to borrowers, others argue that the budget does not go far enough in providing comprehensive housing support. This article discusses the Mortgage Code of Conduct in detail and examines its implications for the Canadian mortgage market.

Mortgage Code of Conduct: Key Elements

  1. Borrower Education and Disclosure

The Mortgage Code of Conduct emphasizes the importance of educating borrowers on the mortgage process, the different types of mortgage products, and their associated risks. As part of this initiative, lenders are required to provide borrowers with clear and concise information about the terms and conditions of their mortgage, including interest rates, prepayment options, and penalties. This increased transparency aims to empower borrowers to make informed decisions and prevent potential misunderstandings down the line.

  1. Lender Responsibilities

Lenders are now required to adhere to strict underwriting standards, which means they must thoroughly assess a borrower’s ability to repay their mortgage. This involves evaluating a borrower’s credit history, income, debt levels, and other relevant factors. By implementing these standards, the Mortgage Code of Conduct aims to ensure that borrowers are not granted loans they cannot afford, thus reducing the risk of default and foreclosure.

In addition, lenders are also required to act in the best interests of borrowers by offering suitable mortgage products based on a borrower’s needs and financial circumstances. This responsibility extends to mortgage brokers, who are now obligated to disclose any conflicts of interest and act solely in the best interests of their clients.

  1. Complaint Resolution Procedures

The Mortgage Code of Conduct establishes a standardized complaint resolution process for borrowers who have concerns or grievances related to their mortgage. This process involves a three-tiered approach:

  • Firstly, borrowers should attempt to resolve their concerns with the lender or mortgage broker directly.
  • If a satisfactory resolution is not achieved, borrowers can escalate their complaint to an external complaints body, which will independently review the case and provide a recommendation.
  • Finally, if the borrower is still unsatisfied with the outcome, they may seek legal recourse through the courts.

This structured approach ensures that borrowers have a clear pathway to address their concerns and promotes accountability within the mortgage industry.

Implications for Borrowers

The Mortgage Code of Conduct offers several advantages for Canadian borrowers:

  • Greater transparency: With the new disclosure requirements, borrowers will have access to all relevant information needed to make informed decisions about their mortgage.
  • Fair treatment: The Mortgage Code of Conduct holds lenders and mortgage brokers accountable for acting in the best interests of borrowers, ensuring that they receive fair and unbiased advice.
  • Enhanced complaint resolution: The standardized complaint resolution process gives borrowers a clear, structured means to address any concerns or grievances related to their mortgage.

Critics’ Concerns: Lack of Comprehensive Housing Support

While the Mortgage Code of Conduct has been praised for its potential benefits to borrowers, some critics argue that the 2023 Federal Budget lacks comprehensive housing support. They contend that the government should have taken a more holistic approach to address Canada’s housing affordability crisis, which has been exacerbated by rising real estate prices, limited housing supply, and increasing demand from both domestic and international buyers.

These experts argue that the government should have implemented measures such as:

  • Increasing the supply of affordable housing: By investing in the construction of new affordable housing units or providing incentives for developers to build more affordable
  • Addressing speculative demand: Implementing policies to curb speculative demand, such as introducing a speculation tax or tightening foreign buyer restrictions, could help stabilize housing prices and ensure that homes are primarily used for living purposes rather than investment.
  • Expanding financial support for first-time homebuyers: By enhancing existing programs or introducing new initiatives, the government could provide additional financial assistance to first-time homebuyers, making it easier for them to enter the housing market.

The Mortgage Code of Conduct introduced in Canada’s 2023 Federal Budget is a step towards increased transparency and fairness in the mortgage market, with benefits for borrowers such as enhanced disclosure, fair treatment, and a clear complaint resolution process. However, critics argue that the budget falls short in addressing the broader housing affordability crisis and call for additional measures to increase the supply of affordable housing, address speculative demand, and provide financial support for first-time homebuyers.

While the Mortgage Code of Conduct is a positive development for borrowers, it remains to be seen whether the government will heed the calls for more comprehensive housing support in future budgets. In the meantime, the code will serve as a foundation for building trust and accountability in the mortgage industry, which will ultimately benefit Canadian homeowners and homebuyers alike.