COVID-19 is having a dramatic effect on the economy. The Government of Canada has taken a number of steps to help support the financing sector to ensure that borrowers are able to access loans.
The Office of the Superintendent of Financial Institutions (“OSFI”) and Canadian Mortgage and Housing Corporation (“CMHC”) have recently announced various policies and plans to assist financial institutions (“FI”) in continuing to make capital available in these difficult and uncertain times.
The following actions are being taken:
- CMHC has agreed to buy up to $150 billion dollars of insured mortgage pools under the Insured Mortgage Purchase Program, freeing up capital which could be deployed by FI.
- CMHC has temporarily deferred dividends payable to the Government of Canada, reserving capital for other deployment in the housing sector if necessary.
- CMHC is prepared to issue up to $60 billion in Canada Mortgage Bonds in order to fund additional lending.
- CMHC has expressly stated that it will be substantially “increasing its appetite for risk”.
- OSFI has adjusted its policies so that mortgage loans and some other types of credits may allow for payment deferrals up to six months without being considered to be non-conforming for certain of its programs to assist FI ability to lend.
- OSFI has adjusted capital and liquidity buffers to increase the lending capacity of Canada’s FI by $300 billion and is encouraging FI to increase and adjust their lending accordingly.
- OSFI is permitting FI to temporarily increase the total assets pledged for covered bonds to increase from 5.5% to 10% in order to access more funds from the Bank of Canada (“BOC”).
- OSFI has delayed the roll out of Basel III, an international financial standards protocol, which would have put greater constraints on the ability of FI to lend money.
The steps taken by CMHC and OSFI, along with the BOC dramatically cutting its interest rate from 1.75% to 0.25% since the initial inset of COVID-19 in Canada, will result in money being less expensive and more readily available and which, in principle, will lead to increased availability and affordability of capital for borrowers.
Clark Wilson’s Banking, Insolvency & Restructuring Practice Group has the experience, skills and practical solutions to help lenders and borrowers through these challenging times.