OSFI's new mortgage stress test is unnecessary and harmful—think tank

OSFI's new mortgage stress test is unnecessary and harmful—think tank

OSFI A new stress test for all uninsured mortgages is unnecessary and could increase costs for homebuyers, according to the latest report from the Fraser Institute.

Study author Neil Mohindra wrote the proposed stress test “will do more harm than good” by limiting access to mortgages for some homebuyers.

“The mandatory standard for stress testing could result in a less competitive and more concentrated mortgage market,” Mohindra stated, as quoted by The Canadian Press.

The study came amid news that the Office of the Superintendent of Financial Institutions is finalizing new lending guidelines.

Among the changes being considered is a requirement that homebuyers who have a down payment of 20% or more and do not require mortgage insurance still have to show they can make their payments if interest rates rise.

The head of OSFI has said that Canada’s banking regulator wants to reduce the risk of mortgage defaults because of high levels of household debt.

“We are not waiting to see those risks crystallize in rising arrears and defaults before we act,” OSFI head Jeremy Rudin said last week.

Canadian household debt compared with disposable income hit a record high in the second quarter. Statistics Canada reported last month that household credit market debt as a proportion of household disposable income increased to 167.8%, up from 166.6% in the first quarter.

However, Mohindra said that instead of a prescriptive test, OSFI could use its existing powers to fix what it believes are deficiencies in policies and procedures.

The Bank of Canada has raised its key interest rate target by a quarter of a percentage point twice this year.

The increases have pushed up the big bank prime lending rates which are used to determine rates for variable-rate mortgages and lines of credit.

Related stories:
Regulator to finalize mortgage rule tweaks
OSFI proposals will do more harm than good for consumers—observers
  • James Robinson 2017-10-13 9:37:48 AM
    I suppose if we are going to have a level playing field with debt, credit card applications should have to be qualified at around 35% interest rates as that would be equal to mortgages being qualified at close to double the actual rate. Wait a minute, there is rarely a debt servicing calculation done to obtain a credit card - it is all beacon score driven. #bigbanksrunottawa
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  • Pela 2017-10-13 11:08:42 AM
    Osfi is concerned about household debt...once we qualify our file and send to the institution they meet with the
    customer and offer him an additional credit card or a line of credit just because they have to do their cross selling...where do they take in concideration the household debt?
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  • Walid Hammmami 2017-10-17 1:55:51 PM
    If we use TDS/GDS in credit card applications that would be great. If they want to make it tougher I don't mind, but they have use logic. I would personally agree if they add cell phone bills, cable, private school fees to the calculation provided they increase the debt ratio a bit. But then again what's wrong with a budget using income after taxes, or is it too tedious?
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