Home Equity Lines of Credit (HELOCs) Report (J2)

Purpose

This report provides the Bank of Canada data on Home Equity Lines of Credit (HELOCs) and related products.

Statutory

Section 24 of the Bank of Canada Act, sections 628 and 600 of the Bank Act.

Application

This return applies to all banks, foreign bank branches, and selected institutions on a consolidated basis.

Frequency

Quarterly - calendar

Reporting dates

This return is to be completed as at the last day of each quarter and submitted within 45 days of the reporting date.

Implementation dates

Quarterly submissions to the Bank of Canada are to begin on May 15, 2019.

Contact agency

Bank of Canada

General instructions

The return applies to loans secured by residential properties in Canada with the exception of business loans.

The total value of loans reported on this return is required to match the M4 balance sheet amounts for Canadian dollar residential mortgages and Canadian dollar non-mortgage loans to individuals for non-business purposes which are secured by residential property.

The return is to include:

• loans purchased from other institutions
• foreign currency loans secured by residential properties in Canada (an adjustment entry is required to accommodate the cross return rule with the M4)

The return is not to include:

• loans recorded as business loans on the M4 balance sheet
• securitized loans purchased from other institutions and reported as securities on the M4
• Canadian currency loans secured by residential properties outside of Canada (an adjustment entry is required to accommodate the cross return rule with the M4)

Section 1 of the return categorizes residential secured lending (except business loans) into four categories: HELOCs, Combined Mortgage-HELOC Loan Plans, Residential Mortgages, Other Non-Business Loans Secured by Residential Property (e.g. HELOAN, HELPS), Multi-Unit Residential Mortgages. The rows in this section then identify where these amounts are located on the balance sheet and what the related loan-to-value category is.

Section II of the return is for the reporting of HELOCs by utilization rate (Outstanding / Authorized). This section includes loans categorized as HELOCs or HELOC components of Combined Mortgage-HELOC Loan Plans and it is to be reported consistently with section I.

Section I - Residential Secured Lending (Excluding Business Loans) - Properties in Canada - Authorized Loan-To-Value Ratio (LTV Ratio)

Section I Column definitions

• (A,B) HELOCs outside of combined loan plans

  The definition of HELOCs (outside of combined loan plans) for the purpose of this return is HELOC type loans that do not meet the criteria for reporting under combined Mortgage-HELOC Loan Plans.

  These loans are expected to be 100% readvanceable with some possible exceptions for unusual cases (e.g. limitations placed on non-performing loans).

  Include:

  • HELOC type loans with payment schedules that are either interest only or principal and interest (excluding Combined mortgage-HELOC loan plans).

  Exclude:

  • Loans with multiple component balances for revolving and amortizing segments. (Combined mortgage-HELOC loan plans)
  • Loans with authorized borrowing limits that are dependent on the balances of other loans. (Combined mortgage-HELOC loan plans)

  • (A) HELOCs outside of combined loan plans – Authorized

    This column is for the reporting of total authorized borrowing limits of HELOCs (corresponding drawn amounts are to be reported in column B). The total authorized borrowing limit equals the current outstanding balance plus amounts available to be drawn by the client at a future date.

  • (B) HELOCs outside of combined loan plans – Drawn

    Drawn refers to the current outstanding balance.

    Note that the drawn amounts should be reported in the same LTV ratio category as the authorized amount.

• (C, D, E, F, G) Combined Mortgage-HELOC Loan Plans

  This category is intended for combined mortgage-HELOC products with both revolving and amortizing features. Some common terms for these products include home equity loan plans, all-in-one products, or combined mortgage-HELOCs.

  Include:

  • Loans with multiple component balances for revolving and amortizing segments.

  Loans with authorized borrowing limits that are dependent on the balances of other loans (the entire set of dependent loans are to be reported as a combined mortgage-HELOC loan plans).

  Exclude:

  • Mortgage and HELOC loans that are extended to the same customer for the same property, but otherwise function independently of each other.

  Note: if a loan structured as a combined mortgage-HELOC loan plan only has an outstanding balance in one of its multiple components it is still to be reported as a combined mortgage-HELOC loan plan.

  • (C) Combined Mortgage-HELOC Loan Plans – Authorized

    This column is for the reporting of total authorized borrowing limits of total Combined Mortgage-HELOC Loan Plans including all of their components (corresponding drawn amounts are to be reported in column D). The total authorized borrowing limit equals the current outstanding balance plus amounts available to be drawn by the client at a future date.

  • (D) Combined Mortgage-HELOC Loan Plans – Drawn

    Drawn refers to the current outstanding balance.

    Note that the drawn amounts should be reported in the same LTV ratio category as the authorized amount.

    Note that the drawn amounts in column D should equal the horizontal sum across the three corresponding cells in columns E, F and G (this is enforced by validation rules IR0305 to IR0318). As a result, the allocation of combined mortgage-HELOC loan plans into authorized LTV ratios is only done at the loan plan level (column D) and not at the component level (columns E, F, and G).

  • (E) Combined Mortgage-HELOC Loan Plans - Of which: is drawn from the HELOC component

    This column is for the reporting of combined mortgage-HELOC loan plans components with revolving or line-of-credit features analogous to a HELOC.

    These loans are expected to be 100% readvanceable with some possible exceptions for unusual cases (e.g. limitations placed on non-performing loans).

    Note the allocation of combined mortgage-HELOC loan plans into authorized LTV ratios is only done at the loan plan level (column D) and not at the component level (columns E, F, and G).

  • (F) Combined Mortgage-HELOC Loan Plans - Of which: is drawn from the mortgage component

    This column is for the reporting of combined mortgage-HELOC loan plans components that are amortizing and analogous to a residential mortgage.

    Although amortizing, a sizeable portion of these outstanding balances are expected to be readvanceable due to dependencies with HELOC components of combined mortgage-HELOC loan plans. See appendix for details and examples.

    Note the allocation of combined mortgage-HELOC loan plans into authorized LTV ratios is only done at the loan plan level (column D) and not at the component level (columns E, F, and G).

  • (G) Combined Mortgage-HELOC Loan Plans - Of which: is drawn from other components

    This column is for the reporting of combined mortgage-HELOC loan plans components that are not covered by the other component categories.

    Although amortizing, a sizeable portion of these outstanding balances are expected to be readvanceable due to dependencies with HELOC components of combined mortgage-HELOC loan plans. See appendix for details and examples.

    Note the allocation of combined mortgage-HELOC loan plans into authorized LTV ratios is only done at the loan plan level (column D) and not at the component level (columns E, F, and G).

• (H) Residential Mortgages outside of combined loan plans with Readvanceable Features (excluding multi-unit properties)

  Include:

  • Residential mortgages with readvanceable features. Please reference Appendix - Example 8.
  • Residential mortgages with readvanceable features can have payment schedules of interest only, principal plus interest, or portions of both (excluding Combined Mortgage-HELOC Loan Plans).

  Exclude:

  • Residential mortgages with no readvanceable features
  • Loans with revolving or line of credit features
  • Multi-unit residential mortgages (mortgages on properties with more than 4 units)

• (I) Residential Mortgages outside of combined loan plans without Readvanceable Features (excluding multi-unit properties)

  Include:

  • Residential mortgages with no embedded repayment and/or refinancing options that bypass adjudication.
  • Mortgage type loans with payment schedules of interest only, principal plus interest, or portions of both (excluding Combined Mortgage-HELOC Loan Plans).

  Exclude:

  • Loans with revolving or line of credit features
  • Multi-unit residential mortgages (mortgages on properties with more than 4 units)
    Residential mortgages with embedded repayment and/or refinancing options that enable the counterparty to bypass an adjudication process.

• (J) Other Non-Business Loans Secured by Residential Property (e.g. HELOAN, HELPS)

  Include:

  • Non-mortgage term loans secured by residential property
  • Other non-business loans secured by residential property not covered by the other categories.

• (K) Total Residential Secured Lending (excluding Multi-Unit Properties)

  The total reported on this line excludes Multi-Unit Residential Mortgages Reported Under Residential (more than 4 units).

• (L) Multi-Unit Residential Mortgages (more than 4 units)

  Multi-unit residential mortgages are defined as mortgages on properties of more than four units.

  The purpose of this column is to remove multi-unit Residential Mortgages from the detailed portion of the return while maintaining the cross return rules with the M4.

• (M) Total Residential Secured Lending

  The total reported on this line is required to match the M4.

Section I Row definitions

• (a) Unavailable LTV

  This category is to be used for the reporting of loans without an available LTV ratio. The expectation is that this would only occur in unusual circumstances.

• (b, c, d…m, n) Authorized LTV Ratio Bands (e.g. > 0% to ≤ 10% … Over 80%)

  Authorized LTV ratio bands are calculated by taking the total authorized borrowing limit of all loans secured by that property and dividing it by the value of the property.

  • Authorized Limits by Section:

    • HELOCs Outside of Combined Plans: The authorized limit is equal to the available amount that may drawn upon plus the current drawn balance.
    • Combined Mortgage-HELOC Loan Plans: The authorized limit is equal to the available amount that may drawn upon from the HELOC component plus the current drawn balance from the remaining components, and amounts available through refinancing/repayment options that bypass adjudication.
    • Residential Mortgages outside of Combined Loan Plans with Refinancing Options (excluding multi-unit properties): The authorized limit is equal to the current drawn balance plus amounts available through refinancing/repayment options that bypass adjudication.
    • Residential Mortgages outside of Combined Loan Plans without Refinancing Options (excluding multi-unit properties): The authorized limit is equal to the current drawn balance.
    • Other Non-Business Loans Secured by Residential Property (e.g. HELOAN, HELPS): The authorized limit is equal to the current drawn balance plus amounts available through refinancing/repayment options that bypass adjudication.
    • Multi-Unit Residential Mortgages (more than 4 units): The authorized limit is equal to the current drawn balance plus amounts available through refinancing/repayment options that bypass adjudication.
    • Total Residential Secured Lending: The authorized limit is equal to the sum of columns: A, C, H, I, J, K.

  • All loans from the same institution secured by the same property are to have the same authorized loan to value ratio, where the numerator is the total authorized borrowing limit of all loans secured by the property.

  • If a loan is in a second or subsequent position the positions of the more senior loans are to be included in the numerator of the LTV ratio (reflecting the positions of other lenders in an LTV ratio by reducing the collateral value of the property in the denominator is unacceptable). For example, with a property value of 100k, 1st mortgage balance of 60k, second mortgage balance of 20k; then the correct LTV ratio for the second mortgage is (60+20)/100=80% (the incorrect calculation is 20/(100-60)=50%).

  • Property values used to calculate the LTV ratio may be updated as deemed prudent by the reporting institution. It is understood that some institutions will update the property values determined at loan origination by indexing them to a real-estate price index.

  • LTV ratios should be calculated in accordance with the principles set out in OSFI's Guideline B-20 (Residential Mortgage Underwriting Practices and Procedures). The LTV ratio should be re-calculated upon any refinancing, any whenever deemed prudent, given changes to a borrower's risk profile or delinquency status, using an appropriate valuation/appraisal methodology.

  Both drawn and authorized amounts of a loan are to be reported using the same authorized LTV ratio.

• (o) Total (lines a through n)

• (p) Allowances and adjustments to reconcile balances reported on the M4

  This line is available for the reporting of allowances and adjustments, where adjustments are small amounts that do not fall into the other categories (e.g. capitalized expenses).

• (q) Total as appears on M4 (lines o + r)

  By section, the amount reported on this line is required to equal a proportion of the corresponding M4 total. The total reported for section K, which is equivalent to the sum of sections B, D, H, I, J, is required to balance with the M4.

• (r) By readvanceable status

  The definition of readvanceable and non-readvanceable is provided in the appendix.

  • (i) of which: readvanceable

    The total reported on this line is required to match the M4.

  • (ii) of which: non-readvanceable

    The total reported on this line is required to match the M4.

• (s) By balance sheet entry

  • (i) of which is reported under M4 residential mortgages

    The total reported on this line is required to match the M4.

  • (ii) of which is reported under M4 loans to individuals for non-business purposes

    The total reported on this line is required to match the M4.

Section II - HELOC Loans Report - Properties in Canada - HELOC Utilization Rate

Section II of the report is to be consistent with the amounts reported in section I for HELOCs and HELOC components of combined mortgage-HELOC loan plans

Section II Column definitions

• HELOCs and HELOC components of Combined Mortgage-HELOC Loan Plans - Authorized

  The authorized amount reported in this column is expected to be consistent with the corresponding categories reported in section I; however, there is no explicit validation rule relating to this.

• HELOCs and HELOC components of Combined Mortgage-HELOC Loan Plans - Drawn

  The total reported in this column is to be equal to section I cells 096 + 117.

• (a, b, c…j) Utilization Rate Bands (> 0% to ≤ 10% … > 90% to ≤ 100%)

  The utilization rate for a loan is defined as the drawn amount (outstanding balance) over the authorized amount. The 'authorized' and 'drawn' amounts of a loan are both to be reported on the same line according to the loans utilization rate.

• (k) Total (cell 092 equals cells 096 + 117)

  The value reported in the drawn column (cell 092) is required to equal the total of the corresponding cells in section I (cells 096 + 117).

Section III – Supplemental Information on Combined Mortgage Loan Plans

1. Readvanceable amounts reported in Section I rows a-n and columns D-G

   Section III (1) should report readvanceable amounts with consistent LTV band classification with Section I rows a-n and columns D-G.

   The drawn column in Section III (1) should reflect readvanceable amounts reported in Section I rows a-n and column D.

   The "Of which: is drawn from the HELOC component", "Of which: is drawn from the mortgage component" and "Of which: is drawn from the other components" should reflect readvanceable amounts reported in Section I rows a-n columns E, F and G respectively. These readvanceable amounts should relate back to the related readvanceable amount reported in Section III (1) drawn column.

   (Cell Z68/69 is a subset of Datapoint 0412…etc)
   Amounts reported in Cell Z72 should be less than or equal to Datapoint 0103, similarly AB72should be less than or equal to0118, AD72 should be less than or equal to 126 and AF72 should be less than or equal to 0167.

   Note: The above instructions will be updated when actual data point addresses are available.

Reporting examples

A copy of the return template can be found on OSFI's website under "Financial Institutions -> Regulatory Data -> Financial Returns -> Manual of Reporting Forms and Instructions -> Home Equity Lines of Credit (HELOCs) (J2)".

Reporting FAQs

(To be added over time)

Appendix – Readvanceable

The readvanceable amount of a loan is a portion of the drawn amount (not an authorized undrawn amount) and defined below:

• Principal that when repaid does not permanently reduce the authorized limit (applicable to Combined Loan Plan or standalone products) and can be re-drawn by the client without further adjudication.

For reporting purposes readvanceable is to be calculated using bullets 1- 4, examples are provided below. It is accepted that in some situations the calculations can deviate from the spirit of the definition articulated above.

1. A simple LOC or HELOC is 100% readvanceable (see example 1).

2. A simple mortgage is 100% non-readvanceable (see example 2).

3. The readvanceable / non-readvanceable portion of a combined mortgage-HELOC loan plan is determined in two steps (see examples 3-9).

   • Step 1. If the original CLP limit is equal to the current CLP limit, the entire amount is considered "readvanceable"; however,

   • Step 2. If the current CLP limit is less than the original CLP limit, then the "non-readvanceable" amount is the integrated MTG O/S up to the "current CLP limit less the maximum policy allowable* HELOC limit"**.

     • * HELOC allowable limit would normally be 65% LTV or a lower limit set by the FI's policy.
     • ** The remaining O/S balance will be readvanceable regardless of P+I or I-only structure.

4. A mortgage with the option to increase the outstanding balance to the beginning of term amount at the customer's discretion without an approval or appraisal is 100% readvanceable (see example 12).

Example 1 – Simple Line of Credit

• Product: Line of Credit

• Readvanceable portion of the outstanding balance: 100%

Example 2 – Simple mortgage

• Product: Mortgage

• Readvanceable portion of outstanding balance: 0%

Example 3 – Home Equity Plan where Original CLP limit = Current CLP limit

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment ($80k Limit) in the CLP structure is $80k

  • Current balance of HELOC segment ($0k Limit) in the CLP structure is $0k

• Since the original CLP Limit ($80k) is equal to the current CLP limit ($80k Mortgage Limit)

  • For the current report, $80k O/S is readvanceable as CLP Limit minus HELOC Limit = $80k

Example 4 –Home Equity Plan where Original CLP limit = Current CLP limit and HELOC fully drawn but less than the maximum policy allowable HELOC limit

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment ($40k Limit) in the CLP structure is $40k

  • Current balance of HELOC segment ($40k Limit) in CLP structure is $40k

• Since original CLP Limit ($80k) is equal to the current CLP limit ($80k, $40k HELOC Limit + $40k Mortgage Limit)

  • For the current report, $80k O/S is readvanceable.

Example 5 – Home Equity Plan where Original CLP limit = Current CLP limit and HELOC is fully drawn

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment ($15k Limit) in the CLP structure is $15k

  • Current balance of HELOC segment ($65k Limit) in the CLP structure is $65k

• Since the original CLP Limit ($80k) is equal to the current CLP limit ($80k, $65k HELOC Limit + $15k Mortgage Limit)

  • For the current report, $80k O/S is readvanceable

Example 6 – Home Equity Plan where Current CLP limit

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized at origination amount is $80k (Original CLP Limit)

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment ($10k Limit) in the CLP structure is $10k

  • Current balance of HELOC segment ($65k Limit) in the CLP structure is $65k

• Since the current CLP limit ($75k, $65k HELOC limit + $10k Mortgage Limit) is less than the original limit ($80k)

  • For the current report, non-Readvanceable portion of the mortgage segment outstanding balance is $10k (Current CLP limit ($75k) less the maximum allowable HELOC limit ($65k))

  • Readvanceable portion of revolving loan outstanding is $65k

Example 7 – Home Equity Plan where Current CLP limit

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment ($10k Limit) in the CLP structure is $10k

  • Current balance of HELOC segment ($65k Limit) in the CLP structure is $0k

• Since the current CLP limit ($75k, $65k HELOC limit + $10k Mortgage Limit) is less than the original limit ($80k)

  • For the current report, non-Readvanceable portion of the mortgage segment outstanding balance is $10k (Current CLP limit ($75k) less the maximum allowable HELOC limit ($65k))

Example 8 – Home Equity Plan where Current CLP limit

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Current CLP Limit is $65k

  • Revolving amount to be limited to 65% (maximum allowable HELOC Limit) of LTV which is $65k

  • Current balance of mortgage segment in the CLP structure is $65k

    or

  • Current balance of HELOC segment in the CLP structure is $65k

    or

  • Balance is a combination between mortgage and HELOC segments that equals $65k

• Since the current CLP limit ($65k) is less than the original limit ($80k)

  • For the current report, non-Readvanceable portion of the mortgage segment outstanding balance is $0k (Current CLP limit ($65k) less the maximum allowable HELOC limit ($65k))

  • Readvanceable Portion is any outstanding balance

Example 9 – Home Equity Plan with Limited Revolver

• Product: Combined Loan Plan (CLP) Home Equity Plan

• Loan Details:

  • Property value is $100k

  • Total authorized amount at origination is $80k (Original CLP Limit)

  • Revolving amount to be limited to $30k (maximum allowable HELOC Limit)

  • Current balance of mortgage segment ($40k Limit) in the CLP structure is $40k

  • Current balance of HELOC segment ($30k Limit) in the CLP structure is $10k

• Since the current CLP limit ($70k, $30k HELOC limit + $40k Mortgage Limit) is less than the original limit ($80k)

  • For the current report, non-Readvanceable portion of the mortgage segment outstanding balance is $40k (Current CLP limit ($70k) less the maximum allowable HELOC limit ($30k))

  • Readvanceable portion of revolving loan outstanding is $10k

Example 10 – Mortgage with Refinancing Options Conditional on Approval or Appraisal

• Product: Mortgage with the option to increase the outstanding balance to the beginning of term amount conditional on an approval or appraisal.

• Readvanceable portion of outstanding balance: 0%

Example 11 – Mortgage with Refinancing Options without Approval or Appraisal

• Product: Mortgage with the option to increase the outstanding balance to the beginning of term amount at the customer's discretion without an approval or appraisal.

• Readvanceable portion of outstanding balance: 100%

Example 12 – Mortgage with optional pre-payments or lump sum payments

• Product: Mortgage with an optional series of pre-payments or optional one-time lump sum payments where the optional payments can be withdrawn at a later date by the borrower. Readvanceable portion of outstanding balance: 0%