OSFI to increase supervision on mortgage underwriting

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The Office of the Superintendent of Financial Institutions released a letter Thursday addressed to all federally regulated financial institutions about its expectations for prudent underwriting.

“With rapid price increases in some areas and current exceptionally low interest rates, the risks are getting larger,” said Superintendent Jeremy Rudin. “OSFI wants to see sound mortgage underwriting procedures in place that adapt to the ever-changing circumstances in this area.”

Vulnerabilities for financial institutions have increased, according to OSFI, due to record-high debt levels and rapid home price increases.

“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,” OSFI said.

The regulator will be more stringently policing institutions to ensure risk mitigation practices are sufficient among mortgage lenders, and that they are in line with both B-20 and B-21.

OSFI has identified five areas related to B-20 that it will now scrutinize more heavily. They are; income verification, non-conforming loans, debt service ratios, appraisal and loan-to-value calculations, risk appetite and portfolio risk management.

“Given the current economic environment in Canada, with record levels of household indebtedness and growing risks and vulnerabilities in some housing markets, OSFI’s supervisory scrutiny in the area of mortgage underwriting will continue,” OSFI said. “Moving forward, OSFI will place an even greater emphasis on confirming that financial institutions conduct prudent mortgage underwriting, and that their internal controls and risk management practices are sound and take into account market developments.”

To read the letter in its entirety, click here.  
  • Amber on 2016-07-07 10:57:54 AM

    Why doesn't OSFI take a look at car loans or credit cards and put some regulations around that. THAT is where people are getting them selves into more trouble then paying a mortgage payment that otherwise would be a rent payment! Housing is much more a requirement then a car or toys and junk!

  • Dan on 2016-07-07 11:41:53 AM

    All parties (lenders and brokers) should be held accountable. IE: Audit's should extend to brokers and their practices/documentation, not just FI's.

    I know talk of a federal regulator for mortgage brokers has been going on, hopefully it will get traction.

    (cue lynch mob)

  • Rick on 2016-07-07 11:50:58 AM

    Let's hope they place the same level of expectation on FI branches and FI mortgage advisors as they to on the broker channel.

    The current double standard is totally unacceptable.

  • Independent BC Broker on 2016-07-07 2:05:52 PM

    More ridiculous actions from the OSFI. Mortgages are not the problem - unsecured debt is the problem and the branch mortgage advisors. They are trying to kill the "AAA" mortgage brokerage industry and push us back to the private and alternative markets as it was in the past. Not good Canada. Not good.

  • Ron Butler on 2016-07-07 2:06:42 PM

    People in government are worried and you cannot blame them: 20% to 35% annual increases in house values are extremely concerning. One can only hope the government is sensitive to the regional nature of the problem.

    A crack down on mortgage underwriting that makes it harder for a young couple in Saskatoon or Kamloops or Sherbrooke to buy a house is just dumb.

  • Michele Hall on 2016-07-07 2:13:15 PM

    when will OfSI look at credit cards, pay day loan and cash money stores , as well as financing negative equity on Car loans . Mortgage are not really the problem .

  • nick on 2016-07-11 6:53:08 AM

    why focus on the broker channel. I have been doing mortgages for over 30 years and i can tell you that the underwriting in the broker channel is the most stringent in history. Brokers feel like the rotor rooter man is going through them to satisfy conditions. The bank branches are the real problem. Bank employees have extreme pressure to write business and their doucmentation is very lenient to say the least. There is where the focus should be.

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