OFSI aims to extend mortgage stress to every buyer
A stress test for uninsured mortgages is among proposals released this month by the Office of the Superintendent of Financial Institutions (OSFI) in a bid to further tighten mortgage underwriting standards.
Currently, only those home buyers with a downpayment of less than 20 per cent and requiring mortgage insurance face the stress test, which requires that borrowers must qualify at the Bank of Canada posted five-year rate, currently at 4.64 per cent. This rate is higher than what is available in the open market.
Eventually, that rate will be replaced by a 200-basis-point (two per cent ) spread above the borrower’s contract rate.
The proposals also require that loan-to-value measurements remain dynamic and adjust for local conditions when used to qualify borrowers.
The extension of stress testing to all uninsured mortgages would shut many borrowers out of the market, drive them into less suitable housing, or send them into the arms of sub-prime lenders that are not federally regulated, according to the Mortgage Professionals Canada (MPC).
The MPC estimates that extending the stress test to all mortgage applicants will freeze about 20 per cent of home buyers out of the market.
“We have initial concerns with the impact the 2 per cent stress test will have on Canadian consumers and questions around the uncertainty that the dynamic Loan-to-Value (LTV) measurements may have in the marketplace,” the MPC said in an email to members.
OSFI said its proposed changes will be available for public input until August 17, 2017. Barring any changes, the updated guidelines for mortgage underwriting will be issued in the fall and come into effect shortly after.