The Office of the Superintendent of Financial Institutions defends B-20
Steve Randall
Canadian Real Estate Wealth
The tighter mortgage rules introduced at the start of 2018 have been defended by the financial services regulator.
The B-20 mortgage guidelines continue to be cited by Realtors for falling home sales and there have been countless calls for them to be changed or scrapped.
But the assistant superintendent of OSFI spoke Tuesday to defend the methods the regulator is using to ensure stability of the Canadian financial system.
In a speech to the Economic Club of Canada in Toronto, Carolyn Rogers acknowledged the huge number of articles and commentaries there have been over the past year – and noting that B-20 even has its own social media hashtag.
But she said that all the OSFI rules go through a public consultation and all receive feedback which is listened to.
Stress test criticism Ms. Rogers spoke specifically about the element of B-20 which has received the most attention – and continues to weaken home sales and challenge those who want to be homebuyers.
“The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events. This is simply prudent. It’s prudent for the bank and it’s prudent for the borrower too,” she said.
She acknowledged that OSFI has received criticism of the stress test but said there had been positive feedback too.
Addressing those who say the stress test is a national policy to deal with a localized problem, she says that it is wrong to say that the policy was designed to lower home prices.
“B-20 was designed to target mortgage underwriting standards. And sound underwritings look the same no matter what city or province you live in,” she stated.
The deputy superintendent also pointed out that the stress test is not just designed as a buffer to rising interest rates – responding to those who say now rates are higher the buffer should be reduced.
“Borrowers face other risks that can impact their ability to pay their mortgage that I mentioned earlier: changes to income or changes to expenses other than their mortgage. It’s prudent to have a buffer for these changes as well,” Ms Rogers said.
OSFI continues to monitor the situation in consultation with the BoC she added.
Unregulated lenders Responding to the view that tighter lending standards for regulated mortgage lenders is driving consumers to unregulated lenders, Ms. Rogers accepted that this is a risk.
But she urged mortgage brokers and real estate agents to mitigate this by guiding vulnerable homebuyers including first-time buyers in the right direction.
“The mortgage broker and the real estate industry are well placed to help manage this risk. If you see risks, if you think these options put your borrower in a vulnerable position, you can steer them away. That would be the right thing to do,” she said.
Renewals exemption The exemption for borrowers who renew with their existing lender but would not pass the stress test has been criticized as dampening competition, as the exemption does not pass to the new lender.
The deputy superintendent said that changing this could displace borrowers who are meeting obligations to their current lender and could see borrowers becoming the focus of price competition.
Whether this lack of portability means those renewing receive less favourable rates by existing lenders has not been shown by OSFI’s monitoring.
More debt is not the answer to home affordbality Ms. Rogers concluded by saying that the answer to rising home affordability issues is not greater debt fuelled by lower underwriting standards.
While noting that the issues of housing costs were a problem that is proving highly challenging, she defended OSFI’s policies and the criticism of ‘unintended consequences’ and highlighted that weaker lending standards have been shown to do more harm to financial stability than the benefits they were intended to create.
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