Critics Raise Concerns Over OSFI’s Proposed Mortgage Changes

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), revealed potential underwriting changes to Guideline B-20 in January to manage market risk. However, critics argue that these changes could have adverse effects, potentially driving borrowers towards unregulated market segments.

Mortgage Professionals Canada (MPC), a prominent mortgage industry association representing 15,000 members, expressed its concerns to OSFI, warning that implementing the proposed measures may introduce additional risk into the real estate market. Moreover, it could make housing even more unaffordable for the average Canadian and push more borrowers towards private lending options.

MPC emphasized that mortgages are relatively safe credit products for federally regulated institutions, citing Equifax data showing mortgage consumers’ strong payment records compared to non-mortgage borrowers. Additionally, mortgage delinquency rates remain historically low.

The association argued that excessively stringent qualification requirements could create a financially regulated system that only benefits a privileged few, leaving other Canadians with costly and riskier mortgage solutions, contradicting OSFI’s mandate of contributing to public confidence in the Canadian financial system.

OSFI Superintendent Peter Routledge acknowledged the risks the regulator aims to manage in its Annual Risk Outlook for 2023, with housing market vulnerability being a significant concern due to household indebtedness and potential economic downturns.

Other stakeholders, such as Ontario’s mortgage broker regulator, the Financial Services Authority of Ontario (FSRA), also raised red flags about OSFI’s proposed rule tightening. FSRA pointed out that recent economic uncertainties, home price appreciation, and stricter underwriting criteria led by OSFI have made it harder for consumers to secure or maintain mortgages with traditional lenders. As a result, more borrowers turned to private non-bank mortgage loans, which often come with higher interest rates and lender fees.

Concerns about market over-tightening

Financial experts, including Ben Rabidoux of Edge Realty Analytics and CIBC Chief economist Ben Tal, questioned the necessity of OSFI’s latest proposed underwriting changes, given the already slowing mortgage market. Tal expressed concerns that OSFI’s measures might worsen the current housing correction and contrast with the federal government’s consideration of demand-side initiatives to boost housing demand.

Superintendent Peter Routledge clarified that OSFI has no bias towards tightening or loosening mortgage underwriting and is primarily focused on ensuring the safety of the mortgage system based on the data and experiences of constituents.

If OSFI proceeds with the proposed changes, experts like Ron Butler of Butler Mortgage predict a surge in housing market activity as buyers rush to enter the market before the new restrictions take effect, potentially causing artificial stimulus to an already resurging housing market—a situation many critics deem undesirable.

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