Santa Claus makes his list and checks it twice, but brokers should also know OSFI will be checking up to see if they are helping lenders meet the new B-20 requirements.
“Brokers need to understand that underwriting has changed,” says Gino Tieri, MCAP's VP of sales. “’No-Doc' and ‘Low-Doc’ are very quickly becoming a thing of the past. OSFI will be checking to see if brokers have applied those guidelines to their mortgages.”
Tieri sees the broker as the foundation for any good underwriting deal, supplying accurate information on the client for the lender. With the tighter guidelines, Tieri sees brokers as crucial to ensuring lenders meet their new obligations under the OSFI rules.
In fact, Tieri would like to see OSFI’s Residential Mortgage Underwriting Practices and Procedures guidelines as part of the brokers’ bible.
“Brokers should be aware of B-20, and from a lender’s perspective, it is a document that all brokers should read,” says Gino Tieri, vice-president of sales at MCAP and a member of the CAAMP board. “And from the insurers’ side, we should prepare, because B-21 is coming.”
The new guidelines are applicable to all federally-regulated financial institutions (FRFIs) that are engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets (although not retroactively applicable to residential mortgages already in place). OSFI's expectation is that there should have been full compliance by the end of the 2012 fiscal year.
“We live in a time of change, and we have to adapt and change to ensure the industry is compliant and meets standard,” says Tieri.
The new guideline requirements cover any loan to an individual that is secured by a residential property (i.e., one to four unit dwellings), home equity lines of credit (HELOCs), home equity loans and other such products that use residential property as security. It also sets out five fundamental principles for sound residential mortgage underwriting:
Principle 1. FRFIs that are engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets should have a comprehensive Residential Mortgage Underwriting Policy (RMUP). Residential mortgage practices and procedures of FRFIs should comply with their established RMUP.
Principle 2. FRFIs should perform reasonable due diligence to record and assess the borrower's identity, background and demonstrated willingness to service his/her debt obligations on a timely basis.
Principle 3. FRFIs should adequately assess the borrower's capacity to service his/her debt obligations on a timely basis.
Principle 4. FRFIs should have sound collateral management and appraisal processes for the underlying mortgage properties.
Principle 5. FRFIs should have effective credit and counterparty risk management practices and procedures that support residential mortgage and underwriting and loan asset portfolio management, including, as appropriate, mortgage insurance.
“B-20 is protecting all of us: the client, brokers and lenders,” says Tieri.