OSFI finalizes new guidelines
Today, the Office of the Superintendent of Financial Institutions (OSFI), released revised guidelines for the mortgage industry, similar to the draft version released earlier this summer. These new parameters will take effect January 1, 2018.
OSFI said they will be holding information sessions through the fall to discuss implementation expectations. We anticipate that lenders will provide specific guidance within the coming weeks about how they will be handling these changes and guidance around submission cut-off dates, pre-sale contracts and other nuances surrounding the changes.
Summary of OSFI’s Mortgage Underwriting Guidelines B-20 revisions:
Introduction of a Minimum Qualifying Rate (Stress Test) for Uninsured Mortgages
The new minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the Bank of Canada, which is 4.89% or the contractual rate plus 200 basis points.
Lenders will be required to enhance their LTV measurement and limits
Lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and must continually update as housing markets and the economic environment evolve.
Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV Limits (ie Co-Lending)
Federally-regulated financial institutions are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio – so limits in mortgage bundling.
It is important to note that these changes to B-20 are not technically required by Credit Unions. That said, in the past, adherence to B-20 has occurred by some CUs for all or some of the guidelines. Given the funding capacity of Credit Unions, there may be some changes to their policies as well.
The significant concern with these changes and the stress test was shared with OSFI. TMG Management and Mortgage Professionals Canada stressed the potential impact of these changes and provided alternative suggestions to help the regulator achieve their goals.
OSFI said they will be holding information sessions through the fall to discuss implementation expectations. We anticipate that lenders will provide specific guidance within the coming weeks about how they will be handling these changes and guidance around submission cut-off dates, pre-sale contracts and other nuances surrounding the changes.
Summary of OSFI’s Mortgage Underwriting Guidelines B-20 revisions:
Introduction of a Minimum Qualifying Rate (Stress Test) for Uninsured Mortgages
The new minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the Bank of Canada, which is 4.89% or the contractual rate plus 200 basis points.
Lenders will be required to enhance their LTV measurement and limits
Lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and must continually update as housing markets and the economic environment evolve.
Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV Limits (ie Co-Lending)
Federally-regulated financial institutions are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio – so limits in mortgage bundling.
It is important to note that these changes to B-20 are not technically required by Credit Unions. That said, in the past, adherence to B-20 has occurred by some CUs for all or some of the guidelines. Given the funding capacity of Credit Unions, there may be some changes to their policies as well.
The significant concern with these changes and the stress test was shared with OSFI. TMG Management and Mortgage Professionals Canada stressed the potential impact of these changes and provided alternative suggestions to help the regulator achieve their goals.
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