OTTAWA (ON), June 28, 2022 /CNW/ – Today, the Office of the Superintendent of Financial Institutions (OSFI) released a new Advisory (Clarification on the treatment of innovative secured real estate loan products under Guideline B-20). The Notice complements existing expectations under Guideline B-20which sets out OSFI’s expectations regarding underwriting practices and procedures for residential reverse mortgages, residential equity mortgages and blended loan plans.
As shared in his Annual Risk Outlook (2022-23), OSFI is taking steps to ensure that federally regulated financial institutions are well prepared to deal with the risk of persistent and unpaid consumer debt that can make lenders more vulnerable to negative economic shocks. Accordingly, this Notice outlines the regulatory expectations for Combined Loan Plans (CLPs), Equity Loans and Reverse Mortgages.
CLPs are an innovative product that has become the predominant offering of Uninsured Secured Home Loans (RESL) and they can offer great value to Canadians. As their structures evolve, our approach and treatment of these exposures must also evolve. The biggest concern with these products is the ability to renew credit above the 65% loan-to-value (LTV) limit. Products structured in this way could lead to greater persistence of outstanding balances and increase risks for lenders and households.
For most borrowers using CLP, these changes will have no effect on how they use their products. For those who owe more than 65% LTV, there will be a phased period where a portion of their principal repayments will be used to reduce their overall mortgage amount until it is less than 65% of its original loan to the value and is not re-advanceable. This will typically happen the next time borrowers renew their CLP after the end of October or December 2023, depending on the lender’s fiscal year.
Strong mortgage underwriting remains the cornerstone of a healthy residential mortgage industry. We are convinced that our actions today are responsible, fit for purpose and contribute to its continued resilience. By acting with caution, making evidence-based decisions, collaborating with regulatory partners and being clear about our expectations of lenders, OSFI is establishing a foundation of stability no matter what lies ahead.
“OSFI continuously monitors the economic environment for a range of vulnerabilities that could pose a risk to the health of from Canada financial system. Today, we asked federally regulated financial institutions to make their innovative mortgage products safer and more sustainable over the long term. We are confident that our actions today will contribute to the continued resilience of from Canada the residential mortgage industry and therefore our financial system. »
– Pierre RoutledgeSuperintendent
- Consumers will not see an increase in their monthly payment requirements as a result of this change.
- This measure will not affect new home buyers.
- The offer of Uninsured Secured Home Loans (RESL) refers to residential mortgages with a down payment of 20% or more.
- Combination Loan Plans (CLP) are usually a traditional amortization mortgage combined with a revolving line of credit.
- From March 2022CLPs greater than 65% LTV represent $204 billion of the $10.8 Tn total outstanding residential mortgage loans according to Bank of Canada Data.
- In the event that a borrower has exceeded the 65% LTV ratio, a portion of that principal payment will need to be allocated to principal repayment, gradually reducing the aggregate CLP borrowing limit to the 65% LTV threshold.
- The implementation date for federally regulated lenders October 31st The end of the fiscal year will be October 31, 2023. For federally regulated lenders with the 31st of Decemberst End of the fiscal year, the implementation date will be December 31, 2023. Consumers with CLP will not see a change in their product structure until their next renewal after these dates.
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, created in 1987, to protect depositors, policyholders, creditors of financial institutions and participants in pension plans, while allowing financial institutions to compete and take reasonable risks. OSFI monitors over 400 federally regulated financial institutions and 1,200 pension plans to determine whether they are in good financial health and meet their prudential requirements.
SOURCE Office of the Superintendent of Financial Institutions
For further information: Contacts: OSFI – Media Relations, [email protected]343-550-9373