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Mortgage stress tests working, OSFI maintains

June 11, 2019 | Posted by: Aaron Baxandall

Regulator reports lenders are approving fewer mortgages for over-leveraged borrowers

James Langton June 10, 2019

Federal banking regulators say that the measures they've taken to curb risky mortgage lending appears to be working, and are not negatively affecting the Canadian mortgage market.

In a paper issued on Monday, the Office of the Superintendent of Financial Institutions (OSFI) said that the measures introduced in 2012, and revised in 2016 and 2018, to combat risks in the housing market amid low interest rates and high household debt levels have improved the quality of mortgage underwriting.

For instance, the regulator reported that since the latest guidance revisions were adopted, 'lenders are approving fewer mortgages for the most highly indebted or over-leveraged borrowers.'

OSFI said that the proportion of new uninsured mortgages that exceed 450% of a borrower's income has declined to 14% from a peak of 20%.

And, it said that concerns about the ability of borrowers to obtain competitive rates when they renew their mortgages have not materialized.

'Data from OSFI regulated lenders shows that following the introduction of the revised guideline, the difference between renewal and new mortgage rates for uninsured five-year fixed and variable rate mortgages has remained largely unchanged,' it said.

Finally, OSFI also found that uninsured mortgage borrowers 'do not appear to be extending amortization periods to pass the stress test requirement.'

'The revisions to B-20 are working; strengthening mortgage underwriting across Canada and improving the resilience of the Canadian financial system to future shocks,' it concluded.

'While improvements have been made OSFI will continue to monitor lender practices, particularly in the area of income verification, and will be proactive with lenders when it identifies areas requiring attention,' it added.

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