OSFI faces criticism on their proposed mortgage changes

Although OSFI’s proposed underwriting changes introduced in January were developed as an attempt to control market risk, critics believe the new rules will only push more borrowers into unregulated areas of the market.

This is one of the concerns Mortgage Professionals Canada (MPC) addressed OSFI with.

In January, the Office of the Superintendent of Financial Institutions (OSFI) proposed three possible underwriting changes to its Guideline B-20, including new loan-to-income (LTI) and debt-to-income (DTI) limits, new interest rate affordability stress tests, and debt-service limits.

OSFI recently ended its consultation on the proposals with industry stakeholders, but it hasn’t confirmed yet the date for announcing the final decision.

“Implementing more restrictions amid heightened interest rate environment could push Canadians out of the federally regulated system and towards riskier and more expensive mortgage solutions,” – MPC noted in its document sent to OSFI. “In the end, more consumers could be choosing alternative and private mortgage financing options.”

According to MPC, mortgages are still the “safest credit products” for federally regulated institutions, as mortgage consumers are not only less likely to miss their mortgage payments but also less likely to miss a non-mortgage payment than consumers without mortgages, Equifax report shows.

MPC also noted that mortgage delinquency rates are still near their historic lows, staying at 0.15% in February.

CIBC Chief economist Ben Tal also reviewed the proposed changes in the context of the federal government’s possible measures that should benefit housing demand, e.g. the promise to raise the insured mortgage limit to a price of $1.25 million from $1 million.

“In my opinion, if you ask Trudeau (and he will make the final decision) he would choose some demand-side initiatives,” – Tal said. “If you ask OSFI, they will choose the opposite direction. They believe the current housing market slowdown is not enough.”

Tal is “concerned that OSFI will make it worse,” when it comes to the current housing correction. “I deal a lot with OSFI, and they do believe they need to do a lot to save Canada’s mortgage market from itself.”