OSFI Underwriting Changes
June 21, 2012 | Posted by: Crescent Mortgage Corp.
OSFI's (the primary regulator and supervisor of federally regulated deposit-taking institutions, insurance companies, and federally regulated private pension plans) final mortgage underwriting guidelines are out, sooner than expected.
That said, here is what’s changing (Note: this applies to federally regulated lenders only):
- HELOCs: The maximum loan-to-value on a HELOC will drop from 80% to 65%. However, lenders can still provide a 15% amortizing mortgage on top of a HELOC, for 80% loan-to-value total. OSFI tells us: “Existing HELOCs are not affected, but future offerings are subject to the limits.”
- Qualifying Rates: The qualifying rate is being toughened for conventional mortgages. For variable rates and fixed terms less than five years, it will be “the greater of the contractual mortgage rate or the five-year benchmark rate published by the Bank of Canada.” This will push a small number of borrowers into 5-year fixed mortgages because they won't qualify for shorter terms.
- Stated Income: Going forward, all self-employed borrowers must provide “reasonable” income verification (e.g., a Notice of Assessment). Most lenders already have such policies. It appears that true “no-documentation” stated income mortgages are officially a thing of the past at mainstream lenders.
- Down Payments: “Cash back should not be considered part of the down payment,” says OSFI. This effectively eliminates 100% financing.
Federally regulated lenders have until “no later than fiscal year-end 2012” to comply with these guidelines. That ranges from October 31, 2012 for major banks to March 31, 2013 for other institutions). However, OSFI expects them to comply sooner if possible, so we may see some of these changes within a few months, if not weeks.
There’s no telling yet if provincial regulators will impose the same guidelines on the lenders they regulate (like credit unions).