OSFI issued an advisory, along with an impact analysis statement for mortgage insurers, defining the capital requirements for insured mortgages under the new First-Time Home Buyer Incentive insured (FTHBI) program. The advisory, in conjunction with the Mortgage Insurer Capital Adequacy Test (MICAT) guideline, sets out the regulatory framework within which OSFI assesses whether a mortgage insurance company maintains adequate capital for FTHBI insured mortgages. The advisory will become effective from November 01, 2019. OSFI also published a guideline impact statement. OSFI will monitor the effectiveness of the new advisory and make any necessary modifications.
At present, the MICAT is not designed to capture the mortgage insurance risk associated with FTHBI mortgages compared to non-FTHBI mortgages with the same risk drivers such as loan-to-value and outstanding balance. OSFI took the following steps to develop an approach to capture the risks associated with FTHBI mortgages and calculate their total requirements in the MICAT:
- Identified the risks associated with FTHBI mortgages
- Measured the risks using the methodology that is used to determine the total requirement formulas in the MICAT
- Designed an approach to calculate total requirements for FTHBI mortgages that uses the existing total requirement formulae
- Determined a suitable calibration for recommended approach consistent with measurement of the risk
Effective Date: November 01, 2019
Keywords: Americas, Canada, Insurance, FTHBI Mortgages, Capital Adequacy, Mortgage Insurers, First Time Home Buyers, Credit Risk, OSFI
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