The regulator looks unlikely to move forward with a mooted tightening of mortgage lending rules
Canada’s banking regulator indicated on Monday that it may not push ahead with moves to tighten mortgage lending rules, a development described as a welcome one by a leading government relations advisor in the mortgage industry.
While the Office of the Superintendent of Financial Institutions (OSFI) had announced in January that it was considering introducing additional mortgage qualification requirements, including heightened stress test conditions, it suggested this week that it had taken negative feedback on board from stakeholders regarding its proposed changes.
That was the right decision in the current borrowing environment, according to J.P. Boutros, a consultant who advised the Canadian Mortgage Brokers Association (CMBA) on its submissions to OSFI.
“It was welcomed by me and a few people I’ve spoken to already that OSFI chose to answer a question that we asked in our submission back in April,” he told Canadian Mortgage Professional. “CMBA asked, ‘Why now?’
“We asked some very pointed questions about the rationale behind doing it now… Why try to make it harder at this point, rather than let the Bank of Canada’s medicine do its work first?”
The near-term issues that OSFI cited as the reason for the consultation were known in late 2020, but weren’t acted upon then, Boutros said – meaning there appeared little sense in acting in 2023 during a much different market.
Interest rate hikes by the Bank of Canada over the last 18 months have ticked up the stress test rate at which prospective borrowers are being tested, meaning affordability has been pushed even further out of reach in many cases.
Submission focused on constructive feedback to proposals
Some mortgage industry insiders suggested in the aftermath of the announcement that the federal finance ministry had the ear of OSFI and may have recommended against further mortgage guideline tightening at present.
OSFI chooses not to make public the content of submissions received – but Boutros said CMBA had been proactive in publishing its own with the intent of having the wider public understand the potential implications of further action.
CMBA’s feedback said the justification for proposed B-20 alterations “seemed predicated on an event now in our rear view, namely the pandemic emergency” and highlighted the likelihood that smaller banks and private lenders would be asked by borrowers “to do even more.
“The social impact of B-20 – the mortgage stress test – and other restrictive policies emanating from Ottawa is still growing, and making B-20 tougher will add to the problem.”
Should OSFI permit independent income verification through the CRA?
OSFI noted another prominent theme in submissions received was the importance of improved income verification in deterring mortgage misrepresentation, with the alternative proposal tabled that the watchdog should work with federal partners to permit independent income verification through the Canada Revenue Agency (CRA).
It said it “welcomed” any measure advancing B-20 expectations that federally regulated financial institutions use independently verifiable, and difficult to falsify, income sources.
That was a further step in the right direction, Boutros said. “That is the kind of thing that needs to be put forward a little bit more, and for the last few years we’ve all been trying to understand the rationale for the resistance behind it,” he said.
With issues related to the CERB (Canada Emergency Response Benefit) and others having faded, he said attention can now be put towards “working with FRFIs to come up with a plan to have better access to CRA data to protect the Canadian market, Canadian consumer, and mortgage brokering industry.
“I think it’s a positive, and a lot of people out there do – certainly, many people in the industry have for quite a while,” he added. “Now that OSFI is adding its name to the list, as CMHC [Canada Mortgage and Housing Corporation] did a few years ago, certainly it’s a positive.”
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