October 19^th, 2023

OSFI engaged with our industry, real estate, and financial sectors in January on a set of proposals that would potentially further restrict lending in its review of Guideline B-20. On October 16, OSFI published a summary of the initial B-20 consultation feedback. 

The consultation period is still ongoing and the regulator has not confirmed any changes. Based on our conversations with the regulator, we do not expect OSFI to produce a draft guideline for industry feedback until sometime in 2024.  

On that basis, we continue to engage with OSFI to advocate for mortgage affordability. Mortgage Professionals Canada is actively participating in this process to ensure that the voices of our membership, the mortgage industry, and above all Canadian home buyers, are heard. 

In its summary of the consultation feedback yesterday, OSFI acknowledged that the cumulative impact of multiple measures could create unintended, negative consequences. We are encouraged by OSFI’s approach thus far, and look forward to continuing to work with the regulator as it makes important decisions in the months to come.

Please find a summary below of some key takeaways from OSFI’s response.

Key Takeaways and MPC Wins:

Income Verification

• We appreciate that OSFI acknowledged and welcomed our request to allow independent income verification to the mortgage brokerage sector through the CRA, as a means of preventing fraud. This is something our association conveyed to OSFI and has been advocating for at the federal level to better protect buyers and our industry.

Debt Service Coverage Restrictions 

• OSFI agree that regulatory limits on debt service coverage should not be pursued.

Loan-to-Income (LTI) and Debt-to-Income (DTI)

• OSFI acknowledged high LTI lending has recently declined as interest rates have risen and credit score as well as other factors can be better predictors of default than high LTI or DTI. This was mentioned in MPC’s consultation submission. 
• OSFI will not be pursuing a DTI restriction, acknowledging that they consider a DTI (total indebtedness) restriction to be too complex to implement at this time.
• In its fall update to its annual risk outlook, published on October 12, the regulator seemed to suggest it may not opt for a new LTI restriction in its review of B-20, noting:

“while other jurisdictions have incorporated LTI thresholds into their regulatory frameworks, Canada’s mortgage market is different from other countries. In fact different Canadian lenders may have different risk appetites borne of bespoke business models in a highly competitive mortgage market. Therefore a simple, macroprudential LTI measure may not be fit-for-purpose in Canada.”

Interest Rate Affordability Stress Test

• OSFI will make its announcement on the minimum qualifying rate on December 12.
• We will continue to reinforce our position that while the existing stress test has protected Canadian borrowers during a time of unprecedented interest rate hikes, and may be a contributing factor as to why delinquency rates remain low and Canadian consumers continue to be resilient, there needs to be the correct level of balance between prudential policy and the ability of Canadian borrowers to be able to secure home financing. Too much regulation could constrain banks from providing credit when it is most scarce. Limiting credit could amplify economic downturn and impair economic recovery.

Transfers, Switches and Renewals

• OSFI noted for uninsured mortgages, when a borrower opts to switch lenders at renewal, a new loan is created and therefore must be fully underwritten including the application of the minimum qualifying rate (MQR). 
• Interestingly, the regulator noted insured borrowers are exempt from the re-application of the MQR at renewal as the borrower’s credit risk has been transferred for the life of the loan to the mortgage insurer.
• On the report’s reference to stress-testing mortgage renewals, switches, and transfers on uninsured mortgages – this restricts consumer’s ability to find the best option for their situation.
• That is why we continue to advocate for the federal government to eliminate the stress test on mortgages that have already been stress tested when they are being transferred, renewed, or switched - if there is no increase in the principal or terms other than the rate.
• This would help borrowers service their debts by finding a more competitive rate at renewal and allow greater consumer choice, driving more affordability and competition among lenders.
• This would ensure Canadians are able to find the mortgage rate and products that best suit their financial needs, particularly in the current high-interest rate environment.