Featured Product

    OSFI Consults on Minimum Qualifying Rate for Uninsured Mortgages

    April 13, 2021

    OSFI is proposing new minimum qualifying rate for uninsured mortgages under the Guideline B-20. The proposal for the qualifying rate for uninsured mortgages is the higher of the mortgage contract rate plus 2.00% or 5.25% as a minimum floor. OSFI also announced a proposal to revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment. Additionally, OSFI published a set of frequently asked questions (FAQs) on this consultation. The comment period on the proposal ends on May 07, 2021. OSFI will communicate final amendments to the qualifying rate for uninsured mortgages in Guideline B-20 by May 24, 2021, with a coming into force date of June 01, 2021.

    In early 2020, OSFI had initiated a consultation process on the benchmark for the qualifying rate for uninsured mortgages contained in Guideline B-20 titled "Residential Mortgage Underwriting Practices and Procedures." OSFI had suspended this consultation in March 2020 due to the COVID-19 pandemic. OSFI has now issued a letter to relaunch the policy work on the qualifying rate with a new proposal and to reinforce the principles of sound mortgage underwriting in Guideline B-20, in light of the current economic environment. Guideline B-20 sets out the OSFI expectations for prudent residential mortgage underwriting, and 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 minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of change in circumstances, such as the reduction of income or a rise in mortgage interest rates. Based on the OSFI analysis, this change in the qualifying rate would result in a reduction in the mortgage loan amount between 2% and 4%, holding the amortization steady. Also, while most borrowers will have a new qualifying rate that is higher than the rate they would have previously qualified under, OSFI estimated that up to 10% of borrowers would have exceeded individual bank’s Total Debt Service ratio thresholds. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers are able to repay their loans strongly contributes to the continued safety and soundness of financial system in Canada. Given the current risk environment, OSFI will be looking for heightened vigilance from federally regulated lenders in applying the principles of Guideline B-20 related to collateral management, income verification and debt servicing, combined Mortgage-HELOC [Home Equity Lines of Credit] loan plans, and risk governance.

     

    Related Links

    Comment Due Date: May 07, 2021

    Effective Date: June 01, 2021

    Keywords: Americas, Canada, Banking, Uninsured Mortgages, RRE, CRE, Mortgage Lending, Minimum Qualifying Rate, Guideline B-20, Credit Risk, FAQ, OSFI

    Featured Experts
    Related Articles
    News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News
    News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News
    News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News
    News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News
    News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News
    News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News
    News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News
    News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793