Thank you very much, Mr. Chair.
Mr. Gregory, I want to circle back to a comment you made previously. You said that, for the most part, Canadian mortgage holders aren't stretched beyond their means. I want to test that claim against some of the reporting out that some of the major banks have done recently about their mortgage book.
We know that variable-rate mortgages represent a significant percentage of mortgages held in Canada. About three-quarters of those are on fixed monthly payments. A majority of those now have reached their trigger point, where none of the agreed-upon monthly payment is going to the principal; it is all going to interest. In fact, in some cases now, we're seeing negative amortization by banks, effectively extending the amortization period by adding on the amount of the interest that's not covered by the monthly payment to the principal amount.
It seems to me that this is a significant point of stress within the mortgage system. It hasn't come due yet, because there isn't an obligation to renew the terms of the monthly payment, if it's on a five-year term, until the end of that term, but I do think this is a point of concern. I have a few questions in this regard.
First, I would ask you if you're confident that Canadian banks are acting within their established regulatory authority in engaging in this practice of negative amortization. What is the extent to which this is a creative solution by banks? Even just last year, there were very few of these mortgages that had reached their trigger point. Is this an established practice that's just seeing a lot of activity because of the current economic conditions?
Second, do you think any further policy intervention or actions are required in the private banking sector, or are there public policy actions that you think would help to address this growing concern within the Canadian mortgage market?
Finally, I am curious to know what the analysis is over the next five years or so and what the expectations of banks are. Are these folks that the banks anticipate will likely default when their variable-term mortgage comes up for renewal? What would have to change between now and then in order to ensure that banks aren't simply delaying defaults by engaging in this practice rather than stopping them altogether?