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The "box" is getting smaller...

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On March 19th, 2012, the Office of the Superintendent of Financial Institutions Canada (OSFI) published draft guide B-20 – Residential Mortgage Underwriting Practices and Procedures. They had asked for comments and suggestions from the industry and are now in the process of preparing final mortgage guidelines to be released in the near future. The following provides a brief description of OSFI’s decisions on a few key issues which will be reflected in the final guideline to Federally Regulated Financial Institutions (FRFI).
  • Re-qualification at renewal: unlike what was originally suggested, it appears that clients will not have to re-qualify for their mortgage at renewal. Lenders have used repayment history as the main determining factor for qualification at renewal and it is anticipated that this will remain. Lenders will however be expected to “refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that [they] can effectively evaluate their credit risk.
  • "Home Equity Lines of Credit: due to the higher risk of HELOC’s, their maximum loan-to-value (LTV) will drop from 80% to 65%
  • Residential Underwriting policies: OSFI has yet to clarify which aspects of Federally Regulated Financial Institutions’ policies will be affected but the overall consensus is that we can expect lenders to tighten up their guidelines and make far less exceptions on deals
  • Automated Valuations of Properties vs. On-site Appraisals: Lenders are still expected to take a risk-based approach to assessing the value of a property, with more comprehensive valuation approaches for higher-risk transactions

Overall, my opinion of what we can expect from lenders during this time of transition is tightening up regulations, less exceptions or “creative solutions” and potentially longer turnaround times and more supporting documentation requirements.

It is more important than ever to be prepared well before you start shopping for a home or considering your mortgage options. Please feel free to contact me for more information.  

Here is the link to the press release from OSFI last week with all of the details http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/notices/osfi/b20_nlet_e.pdf


www.christinebuemann.com

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