“It’s not about affordability in housing; it’s really about protecting the mortgage industry from itself. So the impact on mortgage brokers just seems to be that it will be more work,” Michael Campbell, Verico
’s economist, told MortgageBrokerNews.ca. “More verification of the due diligence they should be doing anyways. It’s going to be more difficult on that front. I hope it won’t be more difficult to get mortgages because it’s already difficult to get a mortgage.”
The Office of the Superintendent of Financial Institutions released a letter last week, addressed to all federally regulated financial institutions, confirming its expectations for prudent underwriting, saying it will increase its supervision on mortgage lenders.
“With rapid price increases in some areas and current exceptionally low interest rates, the risks are getting larger,” said Superintendent Jeremy Rudin at the time. “OSFI wants to see sound mortgage underwriting procedures in place that adapt to the ever-changing circumstances in this area.”
The reason for increased scrutiny, according to the regulator, is due to vulnerabilities for financial institutions have increased, according to OSFI, due to record-high debt levels and rapid home price increases.
The timing of the announcement was somewhat surprising to Campbell.
“I’m wondering what they were doing before if they weren’t verifying income and keeping tabs on this,” he said. “Are you kidding? What were you doing before this?”
And Campbell, like many in the industry, is unsure what the increased scrutiny will entail.
“I’m surprised that they’re coming out pretty clearly, saying they want to ensure prudent underwriting. I’m just not sure what prudent business practices have been up to his point,” he said. “I thought this would be standard issue by now. Will they want more documentation, more audits?
“Or was it just a statement, reminder that they’re watching. It’s hard to know before it comes into fruition. It seems like a warning shot.”
In an exclusive to MortgageBrokerNews.ca, one leading economist weighs in on the implications of OSFI’s recent announcement that it will more closely monitor lenders.