Featured Product

    OSFI Clarifies Treatment of Real Estate Secured Lending Products

    June 28, 2022

    The Office of the Superintendent of Financial Institutions (OSFI) decided to maintain the Domestic Stability Buffer for banks at 2.50% of the total risk-weighted assets. The buffer remains unchanged from the level set in June 2021 which came into effect from October 31, 2021. Additionally, OSFI is reviewing the Domestic Stability Buffer, including its design and range, and expects to complete this work in the Fall 2022. OSFI also released an Advisory on clarifying the treatment of innovative real estate secured lending (RESL) products under Guideline B-20.

    The Advisory 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 Advisory complements the existing expectations under Guideline B-20, which articulates expectations in respect of three innovative real estate secured lending products: Combined Loan Plans or CLPs, reverse residential mortgages, and residential mortgages with shared equity features. OSFI expects that:

    • for most borrowers using Combined Loan Plans, any and all lending above the 65% Loan-to-Value (LTV) limit, which cannot exceed 80% LTV, will be both amortizing and non-re-advanceable. Principal payments applied to the portion above 65% should be matched by a reduction in the overall authorized limit until this overall Combined Loan Plan authorized limit reduces to 65% LTV for all segments, on a combined basis.
    • mortgage lending with shared equity features will be subject to all criteria under the federally regulated financial institutions Residential Mortgage Underwriting Policy (RMUP), consistent with Guideline B-20. The federally regulated financial institutions may supply financing for uninsured mortgages with shared equity features, as long as the mortgage provided by the financial institutions is in the first lien position and the equity investment provider’s contribution is a bona fide equity investment.
    • for reverse mortgage instruments, federally regulated financial institutions should demonstrate heightened due diligence and ongoing risk management in respect of the collateral management, property appraisal, and longevity risk; the institutions should also establish prudent LTV limits in their RMUPs (that is, a maximum of 65% at origination).

    For most borrowers using Combined Loan Plans, these changes will have no effect on the way that they use their products. For those who owe more than 65% LTV, there will be a gradual period where a portion of their principal payments will go toward reducing their overall mortgage amount until it is below 65% of its original loan to value and not be re-advanceable. This will typically happen the next time borrowers renew their Combined Loan Plan after the end of October or December 2023, depending on the lender’s fiscal year. The implementation date for federally regulated lenders with October 31 Fiscal Year End will be October 31, 2023. For federally regulated lenders with December 31 Fiscal Year End, the implementation date will be December 31, 2023. Consumers with Combined Loan Plans will not see a change to their product structure until their next renewal after these dates.

     

    Related Links

     

     

    Keywords: Americas, Canada, Banking, Domestic Stability Buffer, Basel, Regulatory Capital, D-SIBs, Mortgage Lending, Guideline B-20, Credit Risk, Real Estate Secured Lending, Lending, RESL, OSFI

    Featured Experts
    Related Articles
    News

    EBA Sets Out Roadmap for 2023, Updates Reporting Framework 3.2

    The European Banking Authority (EBA) published its work program for 2023 as well as the technical package for phase 3 of version 3.2 of its reporting framework.

    September 30, 2022 WebPage Regulatory News
    News

    FED Announces Launch of Climate Scenario Analysis Exercise in 2023

    The Board of Governors of the Federal Reserve System (FED) announced a pilot climate scenario analysis exercise for six largest banks in the U.S.

    September 29, 2022 WebPage Regulatory News
    News

    BIS Paper Studies Impact of Fintech Lending on Small Businesses in US

    The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.

    September 26, 2022 WebPage Regulatory News
    News

    UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks

    The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).

    September 26, 2022 WebPage Regulatory News
    News

    EBA Launches EU-Wide Transparency Exercise in 2022

    The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.

    September 23, 2022 WebPage Regulatory News
    News

    SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks

    The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."

    September 22, 2022 WebPage Regulatory News
    News

    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.

    September 21, 2022 WebPage Regulatory News
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8523