OSFI Assesses Impact of Revised Guideline on Mortgage Underwriting
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.
Related Links
Keywords: Americas, Canada, Banking, Residential Mortgage Underwriting, Credit Risk, Guideline B-20, OSFI
Previous Article
MAS Amends Notice 610 on Reporting Templates for Banks in SingaporeRelated Articles
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
