Foreclosure is perhaps the most dramatic manifestation of a huge problem facing Canadians: skyrocketing debt. And the picture seems particularly dire in the Atlantic region.
According to data from the Canadian Payroll Association, 45 per cent of Atlantic Canadians say they are overwhelmed by debt, compared to the national average of 40 per cent.
And when it comes to mortgages, the region has the second highest rate of loans at least three months in arrears, 0.52 per cent, slightly more than one in 200 mortgages as of January 2019. That compares to one in a thousand in Ontario and one in 400 nationally.
“We see a number of people who are back in Atlantic Canada earning way less than they used to and that’s a factor when they end up coming to see us with financial trouble,” said Stan Hopkins, a licensed insolvency trustee and owner of S.W. Hopkins & Associates in Dartmouth.
It’s difficult to pinpoint a single reason why Atlantic Canadians are having trouble keeping up with payments. It could have something to do with Nova Scotia having, on average, the second-lowest salaries in the country, or, that nearly 50 per cent of Atlantic Canadians are living paycheque to paycheque
It could be that more Canadians than ever are living off of credit: for every one dollar of income, the average person owes $1.78. For many, high levels of debt equals financial vulnerability; any change in income can have a huge effect on meeting monthly obligations. This is especially true of Atlantic Canadians, many of who are just barely making ends meet.
Lars Osberg, a professor of economics at Dalhousie University said that in the last few decades, there’s been an “enormous shift of risk onto working class people.”
“They used to have benefits that paid for their pension in old age, they used to have better health insurance, unemployment insurance (and) they used to take in more reasonable wages. All those things have been cut back, so households in general are just facing a lot more financial risk,” he said.
When coupled with an unexpected life event, such as an illness or death, job loss or marital separation, these factors can quickly brew into a perfect financial storm that precedes a foreclosure.
“Honestly, the banks don’t want to foreclose,” said Nicholas Mott, a lawyer in Halifax who has an active foreclosure practice.
“It tends to be the very last resort for someone who has missed a lot of payments, or is never getting insurance or doesn’t pay their property taxes.”
John Eisner, president of Credit Counselling Services of Atlantic Canada, a non-profit organization that assists borrowers facing financial trouble, said that help is available for people on the brink, but many people either aren’t aware of it, or, for whatever reason, don’t seek help until it’s too late.
“There’s a lot of pride involved,” he said. “And it doesn’t matter how much money you make— we see people coming through our doors who make excess of six-figure incomes and we see people making maybe $,1000 a month. But, I can tell you one thing: the feelings are the same.”
Eisner said that decades ago, we weren’t seeing the financial problems of today’s scale because the credit simply wasn’t available. Now, quick access to credit makes it incredibly easy for people to live beyond their means.
“On a credit card 30 years ago, (the) minimum payment was five per cent … today it’s one. Thirty years ago, if you had a line of credit for $10,000, you were doing extremely well. Today, they pump out $40,000, $50,000. The minimum payment—regardless of what the balance was—you paid three per cent. Today, it’s interest only. So, why is there a difference? The financial institutions have made it easier for consumers to take on more debt,” he said.
Credit and debt aren’t inherently bad things— they’ve become a necessary part of our day-to-day lives. When used incorrectly, however, the results can be disastrous. Eisner said that promoting financial literacy and education is key to helping Canadians navigate their way through today’s financial battlefield. He also said it’s important people know what their options are as early as possible. In some cases, legal tools such as a bankruptcy or consumer proposal (an arrangement to pay debts agreed upon by a licensed insolvency trustee and creditors) aren’t necessary, and better budgeting and more financial savvy could be enough to get the borrower out of the hole. Other times, they could be required to get the borrower back on their feet. In either case, the sooner someone seeks help, the better.
“I’d like to see people before they get behind,” Eisner said. “Because we see a lot of consumers that are past due on their mortgage and yet up to date on their credit cards and lines of credit. That tells me right there that they have their priorities all wrong.”
Tina Powell, a senior vice president with MNP Ltd., said that she’s seeing an increasing number of people using more credit to pay off debt.
“It can be lines of credit, second mortgages, credit card debt. Sometimes it’s just one triggering factor which can result in missed payments on mortgages, which, once a default happens, it’s pretty hard to for people to catch up. They just don’t have room in their budget,” she said. “So what’s happening is that they’re using credit, and it’s like a continuous cycle.”
When a person’s credit score isn’t desirable, big banks won’t lend to them, so they have to turn to alternative lenders who charge much higher interest rates and fees. Matthew Hennigar, co-founder of Aroi Mortgage Investment Corporation, an alternative lender for high-risk clients, said that high-interest loans are meant to be short-term solutions. With interest rates between 12 and 29 per cent plus a four to 10 per cent lenders’ fee, he knows that he is a last-resort for many people. Ideally, he likes to lend to clients for just long enough to get them back on their feet, until they can get back in with a conventional bank. Hennigar said that Aroi vets the financial history and bank transactions of prospective borrowers for red flags. After approval, they are given a budget to follow, though it’s up to them to carry it through.
Hennigar believes if people were armed with more financial information, they might not come looking to him for money in the first place, which is not necessarily a bad thing.
“More frequently than I’d like to see, people get themselves in this situation where they’re taking on higher costs and higher interest rates and higher debts against their homes, and I think when they get to the end of that road and lose their house anyways, if they could do it over again, maybe they wish they had sold their homes before they eroded away all the equity with high-cost financing and just pay rent somewhere while they got their financial picture back on track,” he said.
If you’re having trouble paying your bills, there are financial professionals who are available to help negotiate with creditors or provide you with the support and information you need to get back on track. You can find Credit Counselling Services of Atlantic Canada at https://www.solveyourdebts.com/.