Exactly One Year Ago

One year ago OFSI said that they would review its B-20 guidelines scrutinize the standards even more. Last week they fulfilled what they said.
Last Thursday, The Office of the Superintendent of Financial Institutions released various proposals that paved the way for more regulation with Canadian mortgage standards. This mainly applies to federally regulated lenders.

The Biggest Changes

The biggest changes come in the form of a stress test that will be implemented for all uninsured mortgages (mortgages with a 20% down payment or more). Current banking rules only allow insured mortgages, variable rates and fixed mortgages of less than 5 years to qualify at a higher rate. This rate is, of course, The Bank Of Canada;s own posted rate at 4.64%, which is a few points higher than typical contract rates.

Going Forward

Going forward, it will be replaced by a 200-based-point buffer above the borrowers contract rate.

Other proposed changes include:

• Requiring that loan-to-value measurements remain dynamic and adjust for local conditions when used to qualify borrowers; and
• Prohibiting bundled mortgages that are meant to circumvent regulatory requirements.

The practice of bundling a second mortgage with a regulated lender’s first mortgage is often used to get around the 80%+ loan-value limit on uninsured mortgages.

Although It’s Going To Affect Less Than 1% Of Canadian Mortgages

Industry experts say that this change will impact less than one percent of all Canadian mortgages.

The extension of stress testing to all uninsured Mortgages would have a far greater impact. it would shut many borrowers out of the market, driving them into less suitable housing or sending them into the arms of credit unions or sub-prime lenders that are not federally regulated.

Mortgage Professionals Canada has expressed questions and concerns to Thursday’s proposed regulations.

“We have initiated concerns with the impact that 2% stress tests will have on Canadian consumers and questions around the uncertainty that the dynamic loan-to-value measurements may have in the marketplace”, it said in an email to members.

OFSI said it’s proposed changes will be available until August 17th, 2017. Public feedback can be sent to B.20@OSFI-BSIF.gc.ca

The updated B-20 guidelines for mortgage standards will be issues in the fall and come into effect shortly after.