Gary Schwartz
CEO
Homeowners’ credit scores could suffer because of a new Ford government policy
During an affordability crisis, leaders should do all they can to make life easier for homebuyers and small businesses. Unfortunately, the Ford government just passed legislation that is likely to damage the credit scores of thousands of Ontarians, making life more expensive when people can least afford it.
This month, the provincial government, under Todd McCarthy, Ontario’s Minister of Public and Business Service Delivery, passed the Homeowner Protection Act, legislation banning a widely used financial lending tool. That tool is called a Notice of Security Interest, or NOSI for short.
Simply put, a NOSI is a document used to alert a potential homebuyer that a piece of equipment in their future home (for example, the air conditioner) belongs to a lender, who has the right to retrieve it. The NOSI also benefits Ontario homeowners by allowing for lower monthly payments for those who may not be able to afford traditional financing on home equipment.
The government’s plan to eliminate the lending tool is well-intentioned. The sad truth is that a tiny minority of bad actors have abused the NOSI system to take advantage of vulnerable Ontarians by charging exorbitant fees for removing the notices from their homes’ titles. These bad actors must be stopped, and the lending industry has long advocated for effective solutions to thwart bad actors from entering the market.
But good intentions alone do not make for good policy. The government’s new policy is not effective. Not only will it fail to keep bad actors out of the market; it will hurt the finances of homeowners and businesses who use NOSIs responsibly.
Consider that over the past decade roughly three million NOSIs have been granted to consumers; meanwhile complaints about the tool amount to a mere 0.16 per cent of this total. It’s also worth noting that financial lending instruments similar to NOSIs are used in provinces across Canada, making Ontario’s outright ban an outlier.
Of course, the government has a duty to crack down on abuse, even if it occurs in small numbers. But it seeks to ban NOSIs without implementing an adequate replacement. This means that with even less rules in place, bad actors will still be able to present impressionable homeowners with fraudulent contracts. What’s more, good actors will pay the price.
Without the “Notice” portion of the NOSI on a homebuyer’s contract, they may be unaware that there is an unsecured debt against their new home. A seller of a home who fails to properly transfer ownership of their home financing contract to a buyer could see their credit rating slip, preventing them from qualifying for a new mortgage.
How Ontario’s planned ban on financing tool will drive up new home prices
This negative chain of events will likely increase the cost of home equipment for customers who are already stretched thin. In a November, 2023, report, the Ontario Bar Association was clear: “To the extent that NOSIs are ‘used properly,’ prohibiting them altogether would have adverse market effects for suppliers and consumers alike.”
This issue may sound obscure, but its impact will be widespread and painful.
The good news is that there are numerous solutions to NOSI abuse that would be welcomed by the lending industry. For example, the province could enhance its own enforcement powers to impede malicious actors. It could strengthen industry regulations and it could implement a fair buyout program for home equipment to prevent consumers from being charged exorbitant fees.
It could also, as the bar association suggested in its report, establish a ministry website devoted to educating the public about the lending tool that so many rely on, yet few know exist.
Ultimately, the province of Ontario has a choice to make. It can forge an ill-conceived path toward financial hardship for thousands of people, or it can work with the Canadian Lenders Association and other industry leaders to implement realistic, effective solutions.
The people of Ontario deserve a home protection policy that shields them from bad actors and unnecessary debt at the same time. Only through careful consultation will they get it.