OSFI to work with lenders and insurers to safeguard market

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The housing market will remain a high risk to the Canadian economy, according to OSFI, who is willing to step in to provide further governance if deemed necessary.

“From a prudential perspective, the environmental risks associated with lending to households are higher now than in the past,” Mark Zelmer, deputy superintendent for OSFI said to the C.D. Howe Institute Housing Policy Conference in Toronto Thursday. “With interest rates expected to remain exceptionally low and household indebtedness high, these risks are likely to remain elevated for the foreseeable future.”

OSFI has implemented a number of regulations to reign in the mortgage lending industry, with its B-21 and, more recently, B-21 guidelines. Zelmer acknowledged that further governance may be needed if the government deems it necessary to reign in the market further.

“We believe it makes sense to work with mortgage lenders and insurers to reduce the likelihood of serious problems in the first place by promoting strong governance and risk management controls around mortgage lending and insurance underwriting activities,” Zelmer said. “This is especially true given residential real estate lending represents more than 60 per cent of bank lending in Canada.”

According to Zelmer, housing indebtedness relative to income is expected to remain near record levels and that an increase in household debt could pose a major threat to the economy.

As for rates, the deputy superintendent acknowledged there is nowhere for rates to go but up.

“It is clear that the ability of the household sector as a whole to absorb major shocks is less now than it was a decade ago,” Zelmer said. “Moreover, with interest rates near record low levels, there is not much scope for interest rates in Canada or the United States to fall further – something that helped people weather storms in the past.”
  • Angela Wong-Liao - Invis Inc on 2014-06-27 1:09:22 PM

    Proactive is always better than Reactive, I am glad that OSFI is working with lenders and insurers to safeguard our market and economy. I agree that our interest rate is exceptionally low at this time and the only way to go is UP. As a seasoned mortgage professional, I noticed that my clients are ranting up their debts quickly because of the hot real estate market, expensive homes means big mortgages, any upward change in interest rates can adversely affected these clients' affordability. I have been cautioning my clients to maximize their prepayment options if possible, so that they can weather any future rate increase.

  • Mark Alltree, AMP on 2014-06-27 1:42:30 PM

    I appreciate and respect governance and risk management controls as much as I appreciate that future higher interest rates, will to an extent, dictate market values based on reduced consumer borrowing capacity. Having said that, as we all know, previous governance that permitted amortizations on insured mortgages to extend to 40 years combined with low interest rates is what precipitated the significant increase in consumer and mortgage debt and higher property values in the first place. No doubt the major factor contributing to the 180 degree turn in many of the Department of Finance policies over the last 6+ years.
    What I think is absolutely essential at this point is that an indexed insurance ceiling be implemented based on the geographic location of a property in the Canada. Major cities with homes at and slightly above the $1 million ceiling completely carve out first time buyers that get shut down on bids when they’re within grasp of a purchase opportunity until they go $1.00 past the ceiling.
    Granted this ceiling will be more than sufficient for other regions in Canada for some time, but there needs to be a great deal more thought put into this policy? Saskatoon, for example, has seen significant market value increases, housing starts and one of the fastest growing real estate markets in Canada, AND, they can still enjoy below ceiling insured purchase activity for the most part. Does a $1 million dollar ceiling in this province make sense for example? Is it exacerbating growth in their values and consumer access to credit? Are major centres beyond the threshold being penalized by other aggressive markets?
    What national measurements were used to determine the feasibility of this ceiling in the first place would be an interesting fact to uncover? My rant for the day.

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