Latest OSFI Announcement: What It Means for Canadian Homebuyers - A First Foundation Perspective

Update - November 6, 2023

At First Foundation, our mission is rooted in helping Canadians OWN homes, GROW their wealth, and PROTECT what matters most. With this ethos, we keenly follow industry developments to ensure you're always in the know. Recently, OSFI (Office of the Superintendent of Financial Institutions) shared feedback on their January consultation regarding potential changes to Guideline B-20. Here’s our take on this announcement and what it could mean for you.

A Quick Recap: Back in January, OSFI sought insights from industry stakeholders, including real estate and financial sectors, on prospective restrictions to lending as a part of their review of Guideline B-20. As of October 16, they have provided a summarized response to the feedback they received during this consultation.

However, it's crucial to note that the consultation process isn't over yet. There have been no official alterations to the guidelines. Indications suggest that a draft may not emerge for public perusal until sometime in 2024.

Notable Highlights from OSFI’s Summary:

• Income Verification: While we are happy that OSFI recognized the importance of allowing independent income verification for the mortgage brokerage sector via the CRA, we’re disappointed that this important function is not available to brokers or lenders. There is no concrete support for this from the CRA at this time. This would be an instrumental tool in thwarting fraudulent activities, ensuring a safer environment for buyers and the industry.
• Loan-to-Income (LTI) and Debt-to-Income (DTI): OSFI noted that LTI lending has seen a drop, mainly due to the rise in interest rates. They also emphasized that other factors, such as credit score, could be more reliable predictors of loan defaults than LTI or DTI metrics. Importantly, OSFI is not currently seeking to introduce any DTI restrictions, citing complexities.
• Debt Service Coverage: Our position is that this would duplicate debt service calculations already provided by GDS / TDS ratios. OSFI seems to be in agreement that regulatory caps on debt service coverage might not be the ideal route.
• Interest Rate Affordability Stress Test: OSFI plans to announce their stance on the minimum qualifying rate by December 12. We continue to stress the significance of finding the right balance between protective policies and facilitating Canadians in securing home financing. Specifically, First Foundation believes that the current MQR of Contract + 2% should be softened or eliminated given the expected future trajectory of rates and the undue qualification restrictions it imposes on most borrowers, including first-time buyers, especially.
• Transfers, Switches, and Renewals: OSFI pointed out that for uninsured mortgages, when borrowers decide to switch lenders during renewal, a new loan is born. This requires a comprehensive underwriting process, including the application of the MQR (Minimum Qualifying Rate). At First Foundation, we advocate for waiving the stress test for mortgages that have been previously screened, especially if there aren't any changes in the principal or terms other than the rate. Unnaturally restricting the transfer of mortgages at renewals gives incumbent lenders an unfair advantage and the opportunity to overcharge. We are very pleased to learn of a potential exemption in this rule for insured borrowers which we are hoping lenders adopt, which will allow insured borrowers to transfer their mortgages to new lenders, at renewal, without having to qualify at the MQR. We believe this should apply to all mortgages, not just insured ones, but this is a step in the right direction.

CONFIRMED - we have received confirmation from multiple lenders that insured, "straight switches", at renewal, will not be subject to qualification at the "stress test" or MQR rate. Call for more details.

In essence, while regulations are essential, they should empower Canadians, not restrict them. Our commitment at First Foundation remains unwavering: to serve Canadians in their journey to OWN, GROW, and PROTECT. Stay connected with us for more updates on these developments, and as always, we're here to assist with your mortgage, insurance, and financial needs.