Brokers will likely breathe a sigh of relief as OSFI has unveiled its finalized B-21 guidelines, following a draft that was largely believed to be less intrusive than its preceding B-20 version.
“Guideline B-21 reinforces sound mortgage underwriting by introducing expectations for mortgage insurers that complement those applicable to mortgage lenders, and by requiring mortgage insurers to conduct adequate due diligence on the lenders with which they do business. Implementing these principles, along with OSFI’s on-going supervisory work in this area, will contribute to the continued stability of the Canadian financial system,” OSFI Superintendent Jeremy Rudin said.
The official guidelines are largely unchanged from the original draft, released in April, with the finalized version centering on six principles.
The six principles – which include implementing an underwriting plan, assessing mortgage lenders and their underwriting practices, and risk mitigation, among others -- can be found below.
From the official guidelines:
Principle 1 relates to a FRMI’s governance and the development of business objectives, strategies and oversight mechanisms in respect of residential mortgage insurance underwriting.
Principles 2 to 4 focus on a FRMI’s interaction with lenders as part of the mortgage insurance underwriting process. This includes:
The FRMI’s establishment of standards, and the initial assessment of lenders against those standards, for “qualified / approved” lender status (Principle 2);
The FRMI’s loan underwriting criteria for lenders (i.e., the characteristics defining insurable mortgage loansFootnote 4), as well as requirements for lenders, for initial and continuing mortgage insurance coverage (Principle 3); and
The FRMI’s ongoing due diligence into lenders’ underwriting practices (Principle 4).
Principles 5 and 6 relate to a FRMI’s internal underwriting operations and risk management. This includes:
The assessment and validation of the mortgage insurer’s internal underwriting systems, models, and underwriters’ processes (Principle 5); and
The use of effective portfolio risk management, including stress testing and risk mitigation such as reinsurance (Principle 6).
The final section of the Guideline outlines disclosure and supervisory requirements.
The B-21 guidelines can be found, in its entirety, here
Related: A B-20 breakdown