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October 18, 2017 | Canada Extends Stress Tests to Uninsured Mortgages in 2018

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

The Canadian Office of the Superintendent of Financial Institutions this morning announced stress testing rules will be expanded to include both uninsured and insured mortgages in Canada.

Starting January 1, 2018, Guideline B-20 requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

In addition, federally regulated financial institutions are prohibited from doing additional credit arrangements in any form that circumvents the institution’s maximum loan to value ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.  See today’s OSFI Bulletin release here.

These changes are long overdue and just a few more steps in restoring some prudent lending rules in what has been a decade of wild west credit abuse in Canada.  In the longer run these moves are important in shoring up more stable financial foundations for households and the economy.   In the near term though, it is another move likely to help mean revert Canadian real estate sales and prices.  And the process will not be pain free.

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October 18th, 2017

Posted In: Juggling Dynamite

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