Turbulent North American Free Trade Agreement negotiations have opened the door to Canada being slapped with auto tariffs, and if that occurs, home equity lines of credit could soar in Southern Ontario.
“It would have an impact on production in the region and on employment levels,” Matt Fabian, director of financial services, research and consulting for TransUnion Canada, said of the auto part manufacturing hub.
“You’d see a slowing of mortgage volumes and less people would be out in the mortgage market, and you might see some people deleveraging and scaling down in their homes. They might take out equity lines just to keep their homes afloat, if that’s the case.”
TransUnion conducted a study last year that revealed a payment hierarchy among consumers in severe financial straits. Not surprisingly, shelter ranked atop virtually all other concerns.
“One of the things they’re willing to protect is mortgages,” said Fabian. “People are willing to go more delinquent on their credit cards than they are their mortgages. It will hurt their credit a little, which isn’t a huge impact versus losing their home.”
Home equity lines of credit could tide over some borrowers in the event that U.S.-imposed auto tariffs savage the sector, but not everybody would be eligible. Fortunately, programs exist to buttress them.
Borrowers with Genworth-insured mortgages can take advantage of the Homeowner Assistance Program; Canada Mortgage and Housing Corporation has the Default Management program; and Canada Guaranty-insured borrowers in straits can take advantage of the Homeownership Solutions Program.
“Since these clients have limited equity in their home, a secured line of credit may not be an option,” said Deren Hasip, founder of Mortgage Scout. “Should any specific market be affected by mass layoffs for any specific reason, consumers have the option to approach their respective insurers to explore their eligibility.
“When you see mass employer exodus, on the high-ratio side what a lot of clients don’t know about is these programs. If there’s a mass layoff for a factory, which is a major employer, there are programs for default insured mortgages. Around 2008-09 when the financial crisis happened, in some of our smaller markets these programs were huge in stabilizing the market. We’ve seen a lot more of that in rural Ontario.”