Featured Product

    OSFI Clarifies Treatment of Real Estate Secured Lending Products

    June 28, 2022

    The Office of the Superintendent of Financial Institutions (OSFI) decided to maintain the Domestic Stability Buffer for banks at 2.50% of the total risk-weighted assets. The buffer remains unchanged from the level set in June 2021 which came into effect from October 31, 2021. Additionally, OSFI is reviewing the Domestic Stability Buffer, including its design and range, and expects to complete this work in the Fall 2022. OSFI also released an Advisory on clarifying the treatment of innovative real estate secured lending (RESL) products under Guideline B-20.

    The Advisory is applicable to all federally-regulated financial institutions that are engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada. The Advisory complements the existing expectations under Guideline B-20, which articulates expectations in respect of three innovative real estate secured lending products: Combined Loan Plans or CLPs, reverse residential mortgages, and residential mortgages with shared equity features. OSFI expects that:

    • for most borrowers using Combined Loan Plans, any and all lending above the 65% Loan-to-Value (LTV) limit, which cannot exceed 80% LTV, will be both amortizing and non-re-advanceable. Principal payments applied to the portion above 65% should be matched by a reduction in the overall authorized limit until this overall Combined Loan Plan authorized limit reduces to 65% LTV for all segments, on a combined basis.
    • mortgage lending with shared equity features will be subject to all criteria under the federally regulated financial institutions Residential Mortgage Underwriting Policy (RMUP), consistent with Guideline B-20. The federally regulated financial institutions may supply financing for uninsured mortgages with shared equity features, as long as the mortgage provided by the financial institutions is in the first lien position and the equity investment provider’s contribution is a bona fide equity investment.
    • for reverse mortgage instruments, federally regulated financial institutions should demonstrate heightened due diligence and ongoing risk management in respect of the collateral management, property appraisal, and longevity risk; the institutions should also establish prudent LTV limits in their RMUPs (that is, a maximum of 65% at origination).

    For most borrowers using Combined Loan Plans, these changes will have no effect on the way that they use their products. For those who owe more than 65% LTV, there will be a gradual period where a portion of their principal payments will go toward reducing their overall mortgage amount until it is below 65% of its original loan to value and not be re-advanceable. This will typically happen the next time borrowers renew their Combined Loan Plan after the end of October or December 2023, depending on the lender’s fiscal year. The implementation date for federally regulated lenders with October 31 Fiscal Year End will be October 31, 2023. For federally regulated lenders with December 31 Fiscal Year End, the implementation date will be December 31, 2023. Consumers with Combined Loan Plans will not see a change to their product structure until their next renewal after these dates.

     

    Related Links

     

     

    Keywords: Americas, Canada, Banking, Domestic Stability Buffer, Basel, Regulatory Capital, D-SIBs, Mortgage Lending, Guideline B-20, Credit Risk, Real Estate Secured Lending, Lending, RESL, OSFI

    Featured Experts
    Related Articles
    News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News
    News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News
    News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582