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    OSFI Assesses Impact of Revised Guideline on Mortgage Underwriting

    January 24, 2020

    OSFI published an information sheet that assesses the impact of the revised Guideline B-20, which sets out the expectations for prudent residential mortgage underwriting practices and procedures. The document provides information on the role of OSFI in maintaining a safe and sound Canadian financial system, includes a brief history of the guideline, reports on the impact the revised Guideline B-20 has had on the uninsured mortgage market in Canada, and identifies areas for review. OSFI had issued an update to the Guideline B-20 in 2017 and the revised guideline came into effect in January 2018. In a speech, Ben Gully of OSFI emphasized that Guideline B-20, which is a broader risk management guide, is "having the desired effect of improving sound mortgage underwriting at banks."

    The application of B-20 to mortgage renewals has remained consistent since the introduction of the guideline in 2012. The information sheet reveals that revisions to B-20 are working, strengthening mortgage underwriting across Canada and improving the resilience of the Canadian financial system to future shocks. While improvements have been made, OSFI will continue to monitor lender practices, particularly in the area of income verification, and will be proactive with lenders when it identifies areas requiring attention. The data representing uninsured mortgages from the top 19 federally regulated mortgage lenders, who hold more than 95% of all mortgages subject to OSFI regulation and supervision, show that since the B-20 revisions were put in place, lenders are approving fewer mortgages for the most highly indebted or over-leveraged borrowers. However, OSFI has recently observed an uptick in mortgage approvals for highly indebted borrowers, seeing a rise from 14.0% to 17.5% in 2019. This increase has been partially supported by a decline in the mortgage rates. OSFI will monitor this area closely.

    Additionally, concerns have been raised that the stress test could limit a borrower's ability to obtain competitive rates at renewal. OSFI indicated it would be monitoring this closely and data from OSFI regulated lenders show that, following the introduction of the revised guideline, the difference between renewal and new mortgage rates for uninsured five-year fixed and variable rate mortgages has remained largely unchanged. 

     

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    Keywords: Americas, Canada, Banking, Residential Mortgage Underwriting, Credit Risk, Guideline B-20, OSFI

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