Office of the Superintendent of Financial Institutions Canada
The Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures. The revised guideline applies towards all federally regulated financial institutions, and will be enforced on January 1, 2018.
Alterations of Guideline B-20 reinforce OSFI’s expectation of which federally regulated mortgage lenders remain vigilant in its mortgage underwriting practices. The final guideline emphasizes the minimum qualifying rate pertaining to uninsured mortgages, expectations towards loan-to-value (LTV) frameworks and limits, as well as restrictions to transactions that circumvent LTV limits.
OSFI introduces a new minimum qualifying rate, the “stress test,” for uninsured mortgages.
• Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
OSFI requires the enhancement of LTV measurement and limits so that they will become dynamic and responsive to risk.
• Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
OSFI places restrictions upon lending arrangements that are designed to circumvent LTV limits.
• A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.