OSFI introduces new regulations for mortgage deferrals

Office of the Superintendent of Financial Institutions (OSFI) is beginning to phase out special regulatory capital treatment of deferrals amid improving economic situation.

The new rules are effective immediately. They are applied to mortgage payment deferrals granted by the Big 6 banks until the end of September. From now on, those deferrals will get special capital treatment for up to three months, while it was six months earlier. All deferrals granted after September 30 will be treated under the OSFI’s usual rules.

As you know, during the peak of the pandemic and market uncertainty, OSFI introduced special treatment for loan and insurance premium payment deferrals. They were considered performing. As a rule, a loan becomes non-performing if the borrower is late on payments, usually by 90 days or more. Such loans require additional capital from the bank in case of losses.

“The gradual winding-up of this special capital treatment supports the current stability of the national financial system by providing a soft return to pre-existing conditions,” – OSFI noted.

“This change reflects changes in economic conditions, phasing out of certain government programs and other factors,” – an OSFI official said. “We’ll keep monitoring those factors and in case the conditions star deteriorating, we are fully ready to take all the necessary measures”.

When asked if banks will be more likely to reduce new deferrals to three months, OSFI officials said that banks are well-capitalized in order to keep offering deferrals and other support programs even after the capital treatment is shut down.

According to OSFI, as of July 30, the total amount of outstanding mortgage deferrals among the Big 6 banks reached $170 billion. Most of them will mature in September-October. OSFI says the number of new deferrals has been limited recently and now remains low.

Lately, the big banks have shown a significant drop in the number of mortgage payment deferrals. For instance, BMO and Scotiabank saw 90% of mortgage borrowers with previous deferrals returning to making usual payments. In case of RBC, 80% have returned to normal payments, 19% received extensions, and 1% is officially delinquent.