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
ECB Announces Package of Temporary Collateral Easing MeasuresRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.