Bank regulator OSFI estimates there’s about $250 billion worth of home loans currently stretched out for 35 years or more, which are most likely loans that have either dipped into negative amortization already, or soon will. (Chris Ratcliffe/Bloomberg)
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Canada’s top banking regulator will soon implement new guidelines for the mortgage market, aimed at reducing the risks posed by negative amortization mortgages — home loans where the payment terms have ballooned by years and sometimes decades because payments are no longer enough to pay down the loan on the original terms.
This month, the Office of the Superintendent of Financial Institutions will unveil new capital adequacy guidelines for banks and mortgage insurers. Among the expected changes will be some aimed at reining in a surge of negative amortized loans.
About one out of every five home loans at three big Canadian banks are now negatively amortizing, which happens when years get added to the payment term of the original loan because the monthly payments are no longer enough to cover anything but the interest.
On a standard 25-year home loan, under normal circumstances, a certain percentage of the mortgage payment goes to the bank in the form of interest, while another chunk is allocated toward paying down the principal. That way, as the borrower makes their payments, they owe less and less money over time.
It happened to Michael Girard-Courty. He bought a duplex in Joliette, Que., last year on a 25-year, variable rate loan. The monthly payment was well within his budget, at $1,156. But since he signed on the dotted line, the Bank of Canada has hiked interest rates multiple times, which means that more and more of his payment is allocated toward interest — not toward paying down the loan at the pace he’d planned.
Rate hikes gobble up every penny of household spending
Rabia Shumayal of Mississauga, Ont. has seen her mortgage rate go from 1.9% to above 5% this year, which has forced her to cut out basically all other spending for her family.
As things stand now, “only $23 goes to pay the capital of my mortgage and the rest is all in interest,” he told CBC News in an interview. “And my mortgage went from 25 years to 47.”
While he hopes to be able to change that, either through lower rates or higher payment amounts, the investment he bought in the hopes of accelerating his retirement has quickly turned into a liability that’s on track to stick around for longer than he’d planned to work.
“It’s not a fun situation and I never expected to be in it,” he said. “I don’t know how it’s going to end up.”
Michael Girard-Courty bought a duplex in Joliette, Que., last year. In less than a year, his mortgage has ballooned from 25 years to 47. (Emiliano Bazan/CBC)
He’s not the only one in this predicament. Exact numbers are hard to come by, but regulatory filings from Canada’s biggest banks show negative amortized loans make up a large and growing pile of debt. Roughly one fifth of the mortgages on the books at BMO, TD and CIBC were in negative amortization territory last quarter.
That’s almost $130 billion of housing debt where, instead of a standard 25-year loan, the mortgage is stretched out over 35, 40 or more years. And with roughly 100,000 mortgages coming up for renewal in Canada every month, more are likely on the way.
Mortgage broker Patrick Betu thinks rules that allow for so many negative amortization loans need to be updated. (Philippe de Montigny/CBC)
Patrick Betu, a mortgage broker in Ottawa, says it’s an “alarming situation” and one that needs to be addressed.
Betu says none of his clients have negatively amortizing loans, in large part because he’s been recommending short-term, fixed rate loans to ride out the current volatility.
“Obviously we do not have a crystal ball so we can’t really say whether or not mortgage rates will come down anytime soon, but that’s basically the situation with my clients,” he said.
Some lenders limit the possibility of negative amortizations by either requiring borrowers to come up with lump sum payments when their payment mix nears the limit, or switching them to a fixed rate loan with higher but steady payments.
Two other big Canadian banks, Royal Bank and Scotiabank, do exactly that, which is why they’re in a different situation.
“We do not originate mortgage products with a structure that would result in negative amortization, as payments on variable rate mortgages automatically increase to ensure accrued interest is covered,” RBC said in its most recent report to shareholders.
(Despite that, almost a quarter of the mortgages on the books at RBC are amortized for more than 35 years. At TD it’s 22 per cent, at BMO it’s 18 and at CIBC it’s 19, while at Scotiabank, less than 1 per cent of the banks’ Canadian home loan book is for longer than 35 years, Scotia recently revealed.)
Betu is among those who thinks variable rate loans with fixed payments that lead to negative amortizations shouldn’t be allowed at all, and he hopes the new rules will crack down on them.
At a recent news conference, the head of the Office of the Superintendent of Financial Institutions, Peter Routledge, poured cold water on the notion that any sort of “crackdown” was coming, but said the forthcoming guidelines are aimed at reducing the risk these loans present to the financial system in the aggregate.
“The risk concentration is not high enough to give us severe concerns … but if you [asked] me five years ago if I would want a problem this size, no.” he said. “I think both banks, financial institutions and borrowers would be better off if the prevalence of this product was less.”
Interest rates pushed his mortgage from 25 to 47 years
About one in five variable rate mortgage holders at three major banks are now in ‘negative amortization’ — where the time it takes to pay off the home loan is getting longer. It’s causing concern with regulators who plan to reign in the type of loan that allows it. One man saw his repayment period go from 25 to 47 years.
Routledge says there’s approximately $250 billion worth of mortgages in Canada that are currently amortized for 35 years or longer, which is a decent proxy for a loan that’s either already longer than originally planned, or will be soon.
That’s about 12 per cent of Canada’s total mortgage debt of just over $2.1 trillion — “not small, not huge either [but] manageable,” Routledge said.
But he did acknowledge it’s a problem, and the guidelines to be published this month “will begin to discuss how we might address that and how we might put in place a little bit more regulatory oversight to make this product a little bit less prevalent.”
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
“Communication is one of the most important skills you require for a successful life.” — Catherine Pulsifer, author.
I’m one hundred percent in agreement with Pulsifer, which is why my evaluation of candidates begins with their writing skills. If a candidate’s writing skills and verbal communication skills, which I’ll assess when interviewing, aren’t well above average, I’ll pass on them regardless of their skills and experience.
Why?
Because business is fundamentally about getting other people to do things—getting employees to be productive, getting customers to buy your products or services, and getting vendors to agree to a counteroffer price. In business, as in life in general, you can’t make anything happen without effective communication; this is especially true when job searching when your writing is often an employer’s first impression of you.
Think of all the writing you engage in during a job search (resumes, cover letters, emails, texts) and all your other writing (LinkedIn profile, as well as posts and comments, blogs, articles, tweets, etc.) employers will read when they Google you to determine if you’re interview-worthy.
With so much of our communication today taking place via writing (email, text, collaboration platforms such as Microsoft Teams, Slack, ClickUp, WhatsApp and Rocket.Chat), the importance of proficient writing skills can’t be overstated.
When assessing a candidate’s writing skills, you probably think I’m looking for grammar and spelling errors. Although error-free writing is important—it shows professionalism and attention to detail—it’s not the primary reason I look at a candidate’s writing skills.
The way someone writes reveals how they think.
Clear writing = Clear thinking
Structured paragraphs = Structured mind
Impactful sentences = Impactful ideas
Effective writing isn’t about using sophisticated vocabulary. Hemingway demonstrated that deceptively simple, stripped-down prose can captivate readers. Effective writing takes intricate thoughts and presents them in a way that makes the reader think, “Damn! Why didn’t I see it that way?” A good writer is a dead giveaway for a good thinker. More than ever, the business world needs “good thinkers.”
Therefore, when I come across a candidate who’s a good writer, hence a good thinker, I know they’re likely to be able to write:
Emails that don’t get deleted immediately and are responded to
Simple, concise, and unambiguous instructions
Pitches that are likely to get read
Social media content that stops thumbs
Human-sounding website copy
Persuasively, while attuned to the reader’s possible sensitivities
Now, let’s talk about the elephant in the room: AI, which job seekers are using en masse. Earlier this year, I wrote that AI’s ability to hyper-increase an employee’s productivity—AI is still in its infancy; we’ve seen nothing yet—in certain professions, such as writing, sales and marketing, computer programming, office and admin, and customer service, makes it a “fewer employees needed” tool, which understandably greatly appeals to employers. In my opinion, the recent layoffs aren’t related to the economy; they’re due to employers adopting AI. Additionally, companies are trying to balance investing in AI with cost-cutting measures. CEOs who’ve previously said, “Our people are everything,” have arguably created today’s job market by obsessively focusing on AI to gain competitive advantages and reduce their largest expense, their payroll.
It wouldn’t be a stretch to assume that most AI usage involves generating written content, content that’s obvious to me, and likely to you as well, to have been written by AI. However, here’s the twist: I don’t particularly care.
Why?
Because the fundamental skill I’m looking for is the ability to organize thoughts and communicate effectively. What I care about is whether the candidate can take AI-generated content and transform it into something uniquely valuable. If they can, they’re demonstrating the skills of being a good thinker and communicator. It’s like being a great DJ; anyone can push play, but it takes skill to read a room and mix music that gets people pumped.
Using AI requires prompting effectively, which requires good writing skills to write clear and precise instructions that guide the AI to produce desired outcomes. Prompting AI effectively requires understanding structure, flow and impact. You need to know how to shape raw information, such as milestones throughout your career when you achieved quantitative results, into a compelling narrative.
So, what’s the best way to gain and enhance your writing skills? As with any skill, you’ve got to work at it.
Two rules guide my writing:
Use strong verbs and nouns instead of relying on adverbs, such as “She dashed to the store.” instead of “She ran quickly to the store.” or “He whispered to the child.” instead of “He spoke softly to the child.”
Avoid using long words when a shorter one will do, such as “use” instead of “utilize” or “ask” instead of “inquire.” As attention spans get shorter, I aim for clarity, simplicity and, most importantly, brevity in my writing.
Don’t just string words together; learn to organize your thoughts, think critically, and communicate clearly. Solid writing skills will significantly set you apart from your competition, giving you an advantage in your job search and career.
Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.
MONTREAL – Politics, public opinion and salary hikes south of the border helped push Air Canada toward a deal that secures major pay gains for pilots, experts say.
Hammered out over the weekend, the would-be agreement includes a cumulative wage hike of nearly 42 per cent over four years — an enormous bump by historical standards — according to one source who was not authorized to speak publicly on the matter. The previous 10-year contract granted increases of just two per cent annually.
The federal government’s stated unwillingness to step in paved the way for a deal, noted John Gradek, after Prime Minister Justin Trudeau made it plain the two sides should hash one out themselves.
“Public opinion basically pressed the federal cabinet, including the prime minister, to keep their hands clear of negotiations and looking at imposing a settlement,” said Gradek, who teaches aviation management at McGill University.
After late-night talks at a hotel near Toronto’s Pearson airport, the country’s biggest airline and the union representing 5,200-plus aviators announced early Sunday morning they had reached a tentative agreement, averting a strike that would have grounded flights and affected some 110,000 passengers daily.
The relative precariousness of the Liberal minority government as well as a push to appear more pro-labour underlay the prime minister’s hands-off approach to the negotiations.
Trudeau said Friday the government would not step in to fix the impasse — unlike during a massive railway work stoppage last month and a strike by WestJet mechanics over the Canada Day long weekend that workers claimed road roughshod over their constitutional right to collective bargaining. Trudeau said the government respects the right to strike and would only intervene if it became apparent no negotiated deal was possible.
“They felt that they really didn’t want to try for a third attempt at intervention and basically said, ‘Let’s let the airline decide how they want to deal with this one,'” said Gradek.
“Air Canada ran out of support as the week wore on, and by the time they got to Friday night, Saturday morning, there was nothing left for them to do but to basically try to get a deal set up and accepted by ALPA (Air Line Pilots Association).”
Trudeau’s government was also unlikely to consider back-to-work legislation after the NDP tore up its agreement to support the Liberal minority in Parliament, Gradek said. Conservative Leader Pierre Poilievre, whose party has traditionally toed a more pro-business line, also said last week that Tories “stand with the pilots” and swore off “pre-empting” the negotiations.
Air Canada CEO Michael Rousseau had asked Ottawa on Thursday to impose binding arbitration pre-emptively — “before any travel disruption starts” — if talks failed. Backed by business leaders, he’d hoped for an effective repeat of the Conservatives’ move to head off a strike in 2012 by legislating Air Canada pilots and ground crew to stick to their posts before any work stoppage could start.
The request may have fallen flat, however. Gradek said he believes there was less anxiety over the fallout from an airline strike than from the countrywide railway shutdown.
He also speculated that public frustration over thousands of cancelled flights would have flowed toward Air Canada rather than Ottawa, prompting the carrier to concede to a deal yielding “unheard of” gains for employees.
“It really was a total collapse of the Air Canada bargaining position,” he said.
Pilots are slated to vote in the coming weeks on the four-year contract.
Last year, pilots at Delta Air Lines, United Airlines and American Airlines secured agreements that included four-year pay boosts ranging from 34 per cent to 40 per cent, ramping up pressure on other carriers to raise wages.
After more than a year of bargaining, Air Canada put forward an offer in August centred around a 30 per cent wage hike over four years.
But the final deal, should union members approve it, grants a 26 per cent increase in the first year alone, retroactive to September 2023, according to the source. Three wage bumps of four per cent would follow in 2024 through 2026.
Passengers may wind up shouldering some of that financial load, one expert noted.
“At the end of the day, it’s all us consumers who are paying,” said Barry Prentice, who heads the University of Manitoba’s transport institute.
Higher fares may be mitigated by the persistence of budget carrier Flair Airlines and the rapid expansion of Porter Airlines — a growing Air Canada rival — as well as waning demand for leisure trips. Corporate travel also remains below pre-COVID-19 levels.
Air Canada said Sunday the tentative contract “recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline.”
The union issued a statement saying that, if ratified, the agreement will generate about $1.9 billion of additional value for Air Canada pilots over the course of the deal.
Meanwhile, labour tension with cabin crew looms on the horizon. Air Canada is poised to kick off negotiations with the union representing more than 10,000 flight attendants this year before the contract expires on March 31.
This report by The Canadian Press was first published Sept. 16, 2024.
