Regulator set to release new mortgage rules

TARA PERKINS (GLOBE & MAIL) Canada’s financial regulator is close to releasing a new set of standards for Canada’s mortgage insurers, one that the real-estate industry has worried may chill the market.

The Office of the Superintendent of Financial Institutions (OSFI) has been working on the guidelines since 2012, after it released a similar set of mortgage lending standards for banks.

The standards for banks, known in the industry as guideline B20, pushed lenders to be more cautious in areas such as credit checks on borrowers, document verification and appraisals. They also capped the amount that any individual can borrow on a home equity line of credit at 65 per cent of the home’s value.

Many industry players say the standards contributed to the decline of Canadian home sales that occurred in late 2012 and early 2013.

The real estate industry has been nervously awaiting the standards for mortgage insurers, which will be known as B21, to see whether they too will have a dampening effect on the housing market. OSFI originally indicated that a draft of the new rules would be released in early 2013, and more recently said they would be published by the end of last month. Sources now indicate they will be released as early as Friday.

Julie Dickson, the head of OSFI, said in 2012 that she does not expect the rules for mortgage insurers to have the same effect on the market that the rules for banks did. Stuart Levings, chief operating officer of insurer Genworth MI Canada, said earlier this week that he does not expect the guidelines to contain anything “dramatic.”

“They accomplished a lot with B20,” he said. “And in terms of their confidence with the way that we as insurers underwrite today, I think there’s a high degree of confidence.”

The draft that OSFI releases will be open to comment before becoming final.

OSFI began working on the latest guidelines shortly after former finance minister Jim Flaherty tasked it with overseeing Canada Mortgage and Housing Corp. (CMHC), the Crown corporation that is the country’s largest mortgage insurer. OSFI was already the watchdog for CMHC’s two private-sector rivals, Genworth and Canada Guaranty.

Mortgage insurance, which covers the lender for losses if the homeowner can’t pay, is mandatory in Canada for borrowers who have a down payment of less than 20 per cent.

Both B20 and B21 are the result of a suggestion by the Financial Stability Board, an international body made up of regulators and banking experts around the world, that all countries should review their rules for banks and mortgage insurers in the wake of the U.S. subprime crisis.

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