OSFI responds to Globe and Mail report

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Following a report by the national newspaper alleging two major banks favour foreign homebuyers, the country’s banking regulator weighs in

“Whether the borrower is foreign or domestic, OSFI expects that institutions will take reasonable steps to verify income; and where income verification is inadequate, to have compensating controls,” Annik Faucher, communications specialist with OSFI, wrote in an email to MortgageBrokerNews.ca.  “As we mentioned in our July 7 letter to the industry, OSFI expects mortgage lenders to verify that their mortgage operations are well supported by prudent underwriting practices, as well as sound risk management and internal controls that are commensurate with these operations.”

But it seems some lenders haven’t heeded the regulator’s requirements.

According to a report by the Globe and Mail, both the Bank of Montreal and Scotiabank make allowances for foreign buyers not afforded to Canadians when purchasing a home.

Both allegedly provide mortgages to foreigners with no credit history and without having to prove income.

Scotiabank’s guidelines specify that loans officers do not need to verify foreign clients’ sources of income if they make down payments of 50 per cent. At BMO, such clients need only 35 per cent down to qualify for mortgages up to $2-million,” the Globe said in the report. “The criteria from both banks show income verification is also not required for new immigrants who have been in Canada less than five years if they put 35 per cent down.”

This seems to be in direct opposition of OSFI’s July letter, which states it “expects all financial institutions to exhibit rigour in the verification of a borrower’s income as it is a critical element in the residential mortgage underwriting process.”

We asked OSFI if it will investigate the allegations brought forth against two major banks by a Globe and Mail report.

“We have nothing more to add other than what is contained in our July 7 letter,” Faucher wrote in a follow-up email.
  • Mark Brennan on 2016-09-15 9:11:19 AM

    "OSFI expects mortgage lenders to verify that their mortgage operations are well supported by prudent underwriting practices, as well as sound risk management and internal controls"

    Banks are lending on equity-based policies and whether at 35% or 50% down, they are comfortable with the level of risk that even in a depressed marketplace that their security position would not be eroded should they have to foreclose. This satisfies OSFI. There may be other factors in play, such as having at least 12 months of mortgage payments on deposit, or other investments to support also for the internal controls piece.

    These policies are not new, but the fact that it is fueled by current outrage of foreign investment exacerbates them even more.

  • BC Broker on 2016-09-15 9:19:08 AM

    Well said Mark. I am very concerned about the media fueling racism here, and the politicians responding by taking the bait, being vote hungry and lacking integrity

  • DMM on 2016-09-15 10:06:27 AM

    What is the rate they are paying on those equity deals? I know my clients have to go to Hometrust or Equitable and they tell me there is no more equity lending. This is a discrimination situation.

  • Mortgage Agent on 2016-09-15 10:07:37 AM

    Both lenders mentioned are exercising compensating controls where income verification is inadequate. By demonstrating the mitigating circumstances in which these loans are approved, it would appear that they are in compliance with the standards set by OSFI (not in opposition).

  • Mark Brennan on 2016-09-15 12:12:06 PM

    @DMM - it may not be called equity lending per se, as that speaks to an older before B20/B21 that are requiring "prudent underwriting practices, as well as sound risk management and internal controls" required today.

    Modified guidelines of existing policies or revamped verbiage corrects this to be compliant with the Fed regulator.

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