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
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
