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    OSFI Guideline on Residential Mortgage Underwriting Procedures

    October 17, 2017

    OSFI published the final version of Guideline B-20 on residential mortgage underwriting practices and procedures. The revised guideline, which comes into effect on January 01, 2018, applies to all federally regulated financial institutions. The cover letter to this guideline includes an unattributed summary of the comments and an explanation of how these issues were dealt with in the final Guideline B-20.

    The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. The final guideline focuses on the minimum qualifying rate for uninsured mortgages, expectations about loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits. OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages. Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%. This guideline specifies that federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve. Moreover, a federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

    OSFI published draft revisions to Guideline B-20 on July 07, 2017 and the consultation period ended on August 17, 2017. OSFI had received more than 200 submissions from federally regulated financial institutions, financial industry associations, other organizations active in the mortgage market, and the general public.


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    Effective Date: January 01, 2018

    Keywords: Americas, Canada, Banking, Residential Mortgage Underwriting, LTV, Stress Testing, Guideline B-20, OSFI

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