Cost of Borrowing disclosure in Canada
Canadian banks, Federal and Provincial politicians lately pride themselves for being conservative in our banking legislation. Canadians banks and legislators have not gone down the slippery road that led to the US sub prime fiasco. This is positive news for Canadians! However in the USA it is sad the good intentioned, politically correct, US Federal legislation during the last few decades allowed the US subprime situation to go critical and thus the financial meltdown, which is now being felt around the world. The USA is not completely to blame. International governments must also share the blame because they bought up these repackaged financial junk food products, that they did not understand.
Please now, don’t get carried away. The Canadian banking system is far from perfect! Each time there are changes to the lending disclosure laws our Canadian mortgage system becomes more complicated. Bureaucracy grows and the Canadian consumer becomes more confused. Because of lobbying by the five big Canadian banks most of the changes are in the banks favour and the result is more consumer confusion.
In the province of Ontario on January 1, 2009, the NEW cost of borrowing legislation that came into effect, still exempts Banks from having to provide amortization schedules to borrowers on closing a mortgage. Go figure this “logic”?
Duplication of well intended efforts and overlapping provincial/federal laws are also a problem. Each government department feels they have the solution to a problem and there in lies the problem. No government agency wants to be downsized, eliminated or just sustainable. Sustainability ( a well worn politically correct word these days) when it comes to government hiring is a foreign concept to the government. Government departments always grow and grow in size in order to help and protect us poor taxpayers (no pun intended). We need consistent and stable legislation. For example 40 year amortizations were embraced for a while in Canada then the maximum was changed to 35 years. Instead of Canada Mortgage and Housing wasting time and resources on how to inform you about greening your home, they should concentrate on their original mandate, and stop trying to be all things to all people.
Below are three legislative changes for the Federal/Provincial politicians to ponder, and then act upon. These changes would address 90% of the confusion in the Canadian Mortgage industry.
1.. All lenders providing any type of loan for whatever reason must provide a standardized amortization schedule to the borrower immediately upon signing. There are currently over 377,000 sites on the internet that offer FREE amortization schedules. There is absolutely no excuse for any lender to not provide an amortization schedule to a borrower.
2.. All lenders must use the same method to calculate the “penalty” for premature termination of a loan. A standardized IRD method is fair to both parties. The IRD method was suggested by CMHC over 20 years ago yet to this day its sloppy implementation is still widely confused, abused and rarely used.
3.. All lenders must use the same method for the “cost of borrowing” calculations. It must be the same through out Canada. A first step in Ontario would be to explain the NEW method using numerical examples instead of using confusing and convoluted legalese.