OSFI addresses broker's criticism

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Broker criticism of OSFI’s proposed guidelines may carry little weight with the regulator, its policy head answering and, perhaps, dismissing concerns those changes go too far.

“Are the banks equipped to handle a 40 percent drop (in property values)?” writes Vlasios Melessanakis, the manager of policy development for the Office of the Superintendent of Financial Institutions, in an internal document responding to broker Rob McLister and an article posted to his website in March. "Canada is not immune. Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.”

The posture reveals the extent to which the regulator is committed to bringing forward a slew of tighter mortgage lending rules for federally regulated institutions. The broker channel has raised a red flag on several points – from re-qualification tests on renewals to consideration of a borrower’s age at the time of application.

CAAMP, among other industry players, has also questioned the need to ratchet down on HELOCs to the extent OSFI is proposing. The regulator passed those guideline changes by members of the broker channel earlier this spring in order, ostensibly,to win their input.

Several brokers have suggested that their criticism has largely fallen on deaf ears and the regulator is determined to move forward with most, if not all, of its proposals.

OSFI's internal documents, accessed by Bloomberg through the Freedom of Information, suggest Melessanakis views the guideline changes as key to protecting the mortgage and housing industries in the long-term.

  • Kevin J. Power, President Power Mortgages Inc on 2012-05-17 1:13:16 AM

    OSFI is becoming a very strong force in watching the financial services industry. Some of their changes make sense, some of the proposals do not. In particular the need for re-qualification testing on renewals. Also giving the right to over rule discriminatory laws based on age is a step backwards. This whole process is very disconcerting.

  • Chad on 2012-05-17 1:19:43 AM

    You have to love Government. We are scared of a house prices dropping so lets make it allot harder for people to get financing and take buyers out of the market.. Lets also make it harder to refinance so people must sell under duress. Wait, lets force the CAP on CMHC take out competition in effect raising rates...
    That should protect our banks.

  • Paul Mangion on 2012-05-17 1:41:56 AM

    Sounds like a self-fulfilling prophecy to me. They never seem to consider what effects these nee jerk reactions will have immediately and how much they can increase the severity of the crisses. All goverments seem to do this because nobody wants top make an un popular decision until it is too late. We can see many examples of this. Greece and Ontario are two great examples. In 2008 Ontario was still handing out raises and couldnt see what everyone else was seeing and now they go to the other extreme. But I guess we have no one to blame but ourselves since we will throw them out of office when a good fiscal decision is made early. (eg. Brian Mulroney). I can't wait for the next politically unforseen crises. The unfunded pension obligations. LOL!

  • ClaytonB on 2012-05-17 1:53:50 AM

    Didn't the inability of being able to renew your mortgage without having to re-qualify cause the problem in the USA in the first place? By making all renewals subject to ever present changing circumstances such as a possible lower TDS going to cause defaults thus put us in the same boat. As responsible Mortgage Brokers do we not try, under already good qualifying guidelines, insure that our clients do not get into the situation the US borrowers did?
    Is it only the rich government bureaucrats with guaranteed income that will be able to have a home in this country?
    It would appear the Banks need to get out of the mortgage business if they are not willing to take on any risk for the rates they charge.
    How much profit do they need to generate for their share holders? Less mortgages less profit?

  • AB Broker on 2012-05-17 2:18:00 AM

    Problem is that we have a bunch of higher ups, pencil pushers trying to set policy without consulting those on the ground level. OSFI, why were you not proactive and making change during the boom? Are you not the regulator? laughable! If it were up to me, I'd fire the decision makers within OSFI for allowing the banks to deviate from policies that were already in place.

    Fellow brokers, it is up to us to prepare for what is about to come our way. Like it or not, more change is coming. We don't have to be victims!

    On with the mortgage revolution!

  • Jerry J. Rose on 2012-05-17 3:42:00 AM

    Having to re qualify borrowers on renewals could cause some consumers a serious hardship if they are up to dated renewal should be offered automatically.We have enough government regulations already if the minister feels that C.M.H.C is overexposed raise the premiums.Raising the down payment and shortening the amort. any further will have serious consequences in the home building industry resulting in even higher unemployment.
    We have enough government regulations already.

  • John Dearin RPA,. AMP. on 2012-05-17 5:20:17 AM

    I can't see how they can have a requalification. What if the person does not qualify after the initial term because his credit has dropped? Are they going to force the sale of the property, or repossess it, even if the person is making the payments on time? I am missing something here.

  • Angela Wong-Liao, Invis Inc on 2012-05-17 5:22:18 AM

    I agree with Jerry, we have enough government regulations and to re qualify borrowers on renewals can create hardship and challenges to home owners. Home ownership is a pride for most Canadians and if the home owners failed the re qualify test on renewals, these home owners may potentially lost their homes or they have to go to alternative financing route which only giving them more hardships and subsequently, these home owners giving up and our real estate market would be flooded with lots of inventories. Demand and Supply and if we have more supply than demand, the real estate prices would be driven down, similar to the current situation south of our border. The consequences could be devastating to the Canadian economy.

  • Terry on 2012-05-17 6:25:29 AM

    Why should an A1 payer have to re-qualify for a simple renewal? In fact, that would be degrading to those clients.

  • Ontario Broker on 2012-05-17 11:08:32 PM

    It is amazing to see that this proposal from OSFI ever saw the light of day. It would cause stupidity to repeat itself. In the early 1980’s with high interest rates & falling real estate values some lenders were dumb enough to re-qualify borrowers &/or demand additional equity injections from borrowers who were current on their mortgages, just to keep acceptable LTVs & paper the file. This caused even higher defaults & thus lower real estate values. Now this OFSI bureaucrat is proposing a policy that WILL CAUSE real estate values to fall.
    “Are banks equipped to take a 40% drop in real estate value”? DOH! Homer, where have you & your OSFI colleagues been? Where were the OSFI stress tests on mortgage portfolios, 10 years ago…4 years ago? Where were the warnings to FIs for which your agency is responsible? Where were the warnings to the taxpayers to whom you are accountable?
    OFSI has been missing in action for most of the last decade. The chiefs of OSFI have been for the most part, former senior partners of major accounting firms (or related consulting firms) responsible for signing off on bank audits. A couple of years later they are the regulator. How could they criticize an FI’s mortgage portfolio their accounting firm previously signed-off on?
    This proposed policy has not been thought through by intelligent, experienced people. Clearly there should be a review of the management at OSFI. I ask out loud, & not rhetorically, where the hell has OSFI been for the last decade, more specifically for the last four years?

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