Guidance facing review
Canadian lenders may soon be grading borrowers on the basis of new underwriting standards apart from the country’s traditional stress test.
On Monday, speaking at the RBC Capital Markets Canadian Bank CEO Conference, Superintendent of Financial Institutions Peter Routledge said the OSFI was reviewing Guideline B-20, the guidance issued by Canada’s bank regulator on residential mortgage underwriting procedures.
Significantly, the OSFI’s review would include looking beyond Canada’s current mortgage-lending standard, or the minimum qualifying rate (MQR). The stress test requires borrowers to pay for a higher interest rate than what the bank has offered.
“The question in our minds is, is it sufficient?” Routledge said. “So we will look at a broader range of debt serviceability tools, including debt-to-income constraints, debt-service constraints, as well as the current interest-rate stress test tool.”
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The OSFI previously announced that the MQR was only one part of Guideline B-20, which it promised would “progressively include other mortgage underwriting standards”.
In the meantime, Canadians could expect the MQR to stay at its current rate pending the outcome of the OSFI’s review of the stress test, including a consultation stage on Guideline B-20.
Just last month, the OSFI announced that it would be looking into possible changes to the MQR for uninsured mortgages before ultimately revealing that it would retain it, ignoring calls for the regulator to weaken its rules.
Canada’s current MQR is the greater value between the mortgage contract rate plus 2% and 5.25%.
Read more: OSFI reaches decision on stress test
The Minimum Qualifying Rate for uninsured mortgages remains unchanged. It’s the greater of the mortgage contract rate plus 2% or 5.25%.— Superintendent of Financial Institutions (@OSFICanada) December 15, 2022
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Canada’s home prices fell for the nine consecutive months leading to November 2022, Bloomberg reported. All the while, the Bank of Canada has steadily lifted interest rates in an ongoing effort to curb inflation.
What do you think of the OSFI’s review of the MQR? Let us know in the comments below.