Back in March the Office of the Superintendent of Financial Institutions (OSFI) released proposed guidelines that they planned to initiate on the banks and Canadian and Toronto mortgage brokers. Those lenders and brokers had until May 1 to comment on the guidelines and now that they have, OSFI is working hard to get them all ready and official, so that they can be officially released next month. But what’s not shocking about it is that the banks and lenders in Canada aren’t thrilled, as it will severely limit the amount of mortgage lending they can participate in – and how much interest they can make.
But, OSFI doesn’t care. In fact, OSFI agrees with Jim Flaherty, the Finance Minister that recently called the banks “irresponsible” for “competing to the bottom on rates.” The OSFI is in the same boat, and says that banks need to start making these changes for themselves, and need to stop waiting for the government to tell them to do it.
Mark Zelmer, assistant superintendent in charge of regulation at OSFI said that lenders must “make sure they have financial resources to manage those risks and the institutional capacity to manage those risks. Anybody that was just simply running the business and managing to OSFI expectations is putting a lot of faith in the regulatory framework.”
Zelmer continued on to say, “Ultimately it’s the institutions that are first and foremost responsible.”
The rules that the OSFI is proposing include requiring banks to create internal standards on a borrower’s ability to repay debt, take better steps taken to verify income, and lower the amount of borrowing on HELOCs to 65% instead of 80%.
The Canadian Association of Accredited Mortgage Professionals wrote to the OSFI after the draft guidelines were released to say, “The rules may have a negative impact on borrowers and could cause mortgage costs to rise.”
But even if that’s the case, the guidelines could still be something that Canadian banks and lenders need. At the beginning of April Julie Dickson, OSFI Superintendent, said that some banks weren’t following the mortgage lending practices that had been approved by their own board.
But Zelmer also wants to look at things with a clear understanding. “If there are lessons to be drawn we’ll be paying close attention to see what are the facts as opposed to all the hype around the situation and see what that tells us in terms of the oversight of our own institutions,” he said.
The OSFI is currently reviewing and considering the proposals it received while the new guidelines were passed out in March; and they hope to have a final version by the end of June.