The Globe and Mail - 03.04.2020

B2| REPORT ON BUSINESS O THE GLOBE AND MAIL| FRIDAY, APRIL 3, 2020

After Kamran Malik’s online ap-
plication for a mortgage deferral
was denied, he called his local
branch in Toronto’s east end.
The bank representative told
him that online and phone appli-
cations are sent to an underwriter
to decide. “They suggested that I
go into the branch to speak with
my adviser who could forward
the application with her re-
marks,” he said.
Mr. Malik closed his restaurant
in Whitby, Ont., early in March to
help prevent the spread of the
COVID-19 outbreak. He has an im-
munocompromised wife and
daughter at home and was con-
cerned about exposing himself to
other people at the TD Canada
Trust branch. But he also didn’t
want to risk being denied a sec-
ond time.
Since the big banks announced
mortgage deferrals that allow
home owners facing financial
pressure as a result of the pan-
demic to skip payments for up to
six months, hundreds of thou-
sands of Canadians have scram-
bled to apply for the program. But
confusion and lack of clarity
around who qualifies, how the
deferrals are structured and
whether a skipped payment
could hurt credit scores have left
people uncertain about how to
proceed with housing costs in the
midst of a devastated economy.
For Mr. Malik, visiting the
branch helped his case. With so-
cial distancing in place, the advis-
er reviewed his banking profile
but did not ask him any addition-

al questions, he said. The applica-

tion was submitted on his behalf

and a few hours later, Mr. Malik

received a phone call that he had

been approved for a two-month

deferral on interest and principal.

But the terms on TD’s website

state that interest will be capital-

ized, meaning that it will be add-

ed to the outstanding balance

and that the client will need to

pay interest on interest, increas-

ing the total cost of borrowing – a

cost that Mr. Malik was not aware

of.

“I consider myself to be well

versed in finances, and yet here I

am wondering whether my defer-

ral is capitalized or not,” Mr. Malik

said. “Otherwise, I would have

opted to defer only my principal.”

Incurring the additional cost is

worthwhile if the only other alter-

native is to default, says Rona Bi-

renbaum, certified financial plan-

ner and founder of Toronto-

based financial-planning firm

Caring for Clients. And since

banks pay interest on deposits,

bonds and other financial prod-

ucts that finance loans and mort-

gages, customers should not ex-

pect a cost-free payment holiday,

she said.

“In the grand scheme of things,

it may add cost to the mortgage,

but if it’s only a six-month defer-

ral, then it’s not going to change

the trajectory of someone’s per-

sonal finances,” Ms. Birenbaum

said. “It has more benefit than

cost if it means that someone can

keep their home.”

This applies to people who

have lost their jobs and do not

have savings they can tap to pay

their mortgage, she said. People

considering deferrals should ex-

haust all emergency funds and

government programs such as

employment insurance, the Can-

ada child benefit and the new

Canada Emergency Response

Benefit (CERB) before choosing

this path. The CERB will pay

$2,000 a month for four months

to individuals who have lost in-

come because of the novel coro-

navirus.

Canada’s largest banks an-

nounced the mortgage deferral

program under a tight timeline

and requests have by all accounts

surged as unemployment num-

bers skyrocketed. The lenders

launched automated online ap-

plications and added staff to call

centres, but response times that

range from one to two weeks are

causing banks to prioritize var-

ying customer needs and leaving

some applicants waiting.

“Part of the problem right now

is that you can’t even get through

to your bank, and one of those

reasons is because there are a lot

of people calling for this deferral

who really aren’t even eligible at

this point,” Ms. Birenbaum said.

Christopher Mills, a Whitby

resident who was recently laid off

from his job as a pilot at Porter

Airlines Inc., requested a deferral

from Bank of Nova Scotia on

March 17 – the same day the pro-

gram was announced. With only a

mortgage and auto loan at Scotia-

bank, the representative asked

him to provide the total amount

of savings he had at other institu-

tions and informed him that his

application would take up to five

days to process. Two weeks later,

the application for a mortgage de-

ferral was still pending.

When he followed up on his car

loan deferral request earlier this

week, he said that Scotiabank

told him that he was denied, cit-

ing the savings he had at a differ-

ent financial institution. But Mr.

Mills said that, even with employ-

ment insurance, he will only have

enough money to pay his bills un-

til the end of May. “I might have to

put my mortgage on my line of

credit just so it doesn’t bounce

and reflect on my credit score.”

While many of the banks have

said that skipping a payment will

not harm a home owner’s credit

score, Calum Ross, principal bro-

ker with the Mortgage Manage-

ment Group, encourages custom-

ers to confirm the terms with the

banking representative, keep de-

tailed records of all information

provided, and only defer as a last

resort.

Home owners at the beginning

of a 25-year amortization period

often overlook that their monthly

payments are largely made up of

interest, Mr. Ross said. Since that

deferred interest will be tacked

onto the principal, it will inflate

their monthly payments and they

may need to consider extending

the amortization period of their

mortgage when they renew.

SpecialtoTheGlobeandMail

Applicantsunclearonmortgagedeferrals

Lackofclarityonwho

qualifies,thestructure

oftheprogramand

effectsoncreditscores

leavessomeunsure

howtoproceed

STEFANIE MAROTTA

Restaurateur Kamran Malik, seen with his wife and daughter outside their condo in Scarborough, Ont., on

Wednesday, was told to go into his local bank branch after his online application for a mortgage deferral

was denied. He was later approved for a two-month deferral.MELISSATAIT/THEGLOBEANDMAIL

The European Commission proposed on Thursday a pack-
age of measures to soften the effect of the coronavirus pan-
demic on the EU economy, including a short-time work
scheme and easier access to funds for farmers and fisher-
men.
The Commission expects the EU to go into a deep reces-
sion this year because of the coronavirus outbreak, which
has slowed economic activity to a crawl across the 27 mem-
bers states.
“The depth and the breadth of this crisis requires a re-
sponse unprecedented in scale, speed and solidarity,” the EU
executive said in a document outlining the measures.
To prevent firms from laying off workers when there is
not enough work, the Commission proposed that all EU
countries adopt a German scheme under which employers
cut working hours, not jobs, andthe government pays for
the difference in salaries, so that workers retain their spend-
ing power.
“[It] can benefit all the member states who want to use
it,” Commission President Ursula von der Leyen told a news
briefing.
To finance the plan, the Commission would borrow €100-
billion ($153.5-billion) on the markets against €25-billion in
EU governments’ guarantees using its triple-A rating. It
would then lend the money cheaply to member states,
many of which have lower credit ratings.
Once asked by a government for help with wage subsi-
dies, the Commission would verify how much extra that
country was spending on the scheme and decide the terms
of the loan, including the amount, the maximum average
maturity and pricing.
A Commission proposal for a loan would then have to be
approved by EUgovernments.
The Commission also proposed to increase cash advances
to farmers under the EU’s Common Agriculture Policy and
give them more time to apply for support.
It would pay up to 75 per cent of compensation to fisher-
men under the European Maritime and Fisheries Fund for
any temporary loss of work, with the rest being met by na-
tional governments. Similar help will beavailable to salmon
farms and similar businesses.
“These measures will help protect thousands of jobs in
the EU’s coastal regions and maintain food security,” the
EU’s Environment Commissioner Virginijus Sinkevicius
said.
The Commission also proposed waiving any national co-
financing normally needed when countries get EU money to
build infrastructure projects such as motorways and bridges,
making the projects fully paid for by the bloc. Money can
also be moved between regions, it said.
“This is an unprecedented move which reflects the need
for Member States to use all available means to support their
citizens at this moment,” the document said.
The proposed measures, which still need the approval of
the European Parliament and EU member states, will apply
retroactively from Feb. 1 and will be available till Dec. 31.
Member states disagree over how much help should be
provided at the EU level to offset the economic impact of
coronavirus.
Hard-hit southern countries such as Italy have called for
the issuance of joint debt, but the fiscally conservative north
has urged more restraint in rolling out targeted aid schemes.

REUTERS

EUproposeswork

plan,aidforfarmers

andfishermento

offset virusimpact

GABRIELA BACZYNSKABRUSSELS

The number of Americans filing

claims for unemployment bene-

fits shot to a record high of more

than six million last week as more

jurisdictions enforced stay-at-

home measures to curb the coro-

navirus pandemic, which econo-

mists say has pushed the econo-

my into recession.

Thursday’s weekly jobless

claims report from the Labour

Department, the most timely da-

ta on the economy’s health, rein-

forced economists’ views that the

longest employment boom in

U.S. history probably ended in

March.

Initial claims for state unem-

ployment benefits surged 3.

million to a seasonally adjusted

6.648 million for the week ended

March 28, thegovernment said.

Data for the prior week were re-

vised to show 24,000 more appli-

cations received than previously

reported, lifting the number to

3.307 million.

Economists polled by Reuters

had forecast claims would jump

to 3.50 million in the latest week,

though estimates were as high as

5.25 million.

“Similar to last week’s unem-

ployment claims numbers, to-

day’s report reflects the sacrifices

American workers are making for

their families, neighbors, and

country in order to slow the

spread,” Labour Secretary Eugene

Scalia said in a statement.

The United States has the high-

est number of confirmed cases of

COVID-19, the respiratory illness

caused by the virus, with more

than 214,000 people infected.

Nearly 5,000 people in the coun-

try have died from the illness, ac-

cording to a Reuters tally.

The American dollar was little

changed against a basket of cur-

rencies. U.S Treasury prices were

trading higher while U.S. stock in-

dex futures pared gains.

Applications for unemploy-

ment benefits peaked at 665,

during the 2007-09 recession,

when 8.7 million jobs were lost.

Economists say the country

should brace for jobless claims to

continue escalating, partly citing

generous provisions of a historic

US$2.3-trillion fiscal package

signed by President Donald

Trump last Friday and the federal

government’s easing of require-

ments for workers to seek bene-

fits.

As a result, self-employed and

gig workers who previously were

unable to claim unemployment

benefits are now eligible. In addi-

tion, the unemployed will get up

to US$600 a week for up to four

months, which is equivalent to

US$15 an hour for a 40-hour work-

week. By comparison,the govern-

ment-mandated minimum wage

is about US$7.25 an hour and the

average jobless benefits payment

was roughly US$385 for each per-

son monthly at the start of this

year.

“Why work when one is better

off not working financially and

healthwise?” said Sung Won

Sohn, a business economics pro-

fessor at Loyola Marymount Uni-

versity in Los Angeles.

Last week’s data have no bear-

ing on the closely watched em-

ployment report for March,

scheduled for release on Friday.

For the latter, thegovernment

surveyed businesses and house-

holds in the middle of the month,

when just a handful of states were

enforcing “stay-at-home” or

“shelter-in-place” orders.

It is, however, a preview of the

carnage that awaits. Retailers, in-

cluding Macy’s, Kohl’s Corp. and

Gap Inc., said on Monday they

would furlough tens of thousands

of employees.

According to a Reuters survey

of economists, thegovernment

report on Friday is likely to show

non-farm payrolls dropped by

100,000 jobs in March after a ro-

bust increase of 273,000 in Febru-

ary. The unemployment rate is

forecast to rise three-tenths of a

percentage point to 3.8 per cent

for March.

“A rough look at the most af-

fected industries suggests a po-

tential payroll job loss of over 16

million jobs,” said David Kelly,

chief global strategist at JPMor-

gan Asset Management. “The loss

would be enough to boost the un-

employment rate from roughly

3.5 per cent to 12.5 per cent, which

would be its highest rate since the

Great Depression.”

Thursday’s claims report also

showed the number receiving

benefits after an initial week of

aid jumped 1.245 million to 3.

million for the week ended March

21, the highest since July 6, 2013.

REUTERS

U.S.unemploymentclaimssoarpast

sixmillionascoronaviruscausesmorelayoffs

LUCIA MUTIKANIWASHINGTON

Thursday’sweekly

joblessclaimsreport

fromtheLabour

Department,themost

timelydataonthe

economy’shealth,

reinforcedeconomists’

viewsthatthelongest

employmentboomin

U.S.historyprobably

endedinMarch.

Canada posted a narrower-than

expected trade deficit of $983-

million in February as exports

rose on a surge in aircraft ship-

ments and imports declined on

lower demand for crude oil,

official data showed on Friday.

Analysts polled by Reuters

had forecast a shortfall of $1.87-

billion. Statistics Canada revised

the January deficit figure to

$1.66-billion from an initial

$1.47-billion.

“It’s a positive headline sur-

prise for February,” said Stephen

Tapp, deputy chief economist at

Export Development Canada in

an interview, but cautioned it

was unlikely to continue.

“This reflects the start of the

COVID-19 impacts in China and

spreading throughout the world,

but it’s certainly going to get

worse before it gets better,” Mr.

Tapp added.

The Bank of Canada cut its

overnight interest rate by half a

percentage point, to 0.25 per

cent, for the third time in a

month on Friday as officials try

to shield the Canadian economy

from the impact of the coro-

navirus outbreak.

Statistics Canada has said

repeatedly it is monitoring for

the possible impacts of the

coronavirus outbreak on Cana-

da’s economic data, including

on the trade front, which the

agency says could be significant-

ly affected. However, the coro-

navirus outbreak, which causes

the respiratory illness COVID-19,

did not appear to have a major

impact on the February data,

Statscan said on Thursday, de-

spite reduced trade with China.

REUTERS

CANADAREPORTSNARROWER-THAN-EXPECTEDTRADEDEFICITINFEBRUARY