OSFI scraps stress test rules for borrowers switching lenders at renewal

Canada’s banking regulator says it’s ending the requirement for borrowers on uninsured mortgages to complete a stress test when switching lenders at renewal time.

Mortgage providers will no longer have to apply the minimum qualifying rate when a borrower moves from another lender and keeps their existing loan amount and amortization schedule, the Office of the Superintendent of Financial Institutions (OSFI) said on Wednesday,

The policy has long been flagged within the mortgage industry as a possible deterrent for homeowners hoping to shop around at renewal time. OSFI said it had acted on industry feedback about the “imbalance” between insured and uninsured mortgage renewals and said while the measure had been initially put in place to safeguard against specific risks, those showed little sign of materializing.

The change is the latest in a slew of amendments to Canada’s mortgage guidelines, with the federal government announcing last week that it was hiking the cap on insured mortgages to $1.5 million and allowing 30-year amortizations to first-time homebuyers and Canadians purchasing newly built properties.

Mortgage Professionals Canada (MPC) president and chief executive officer Lauren van den Berg described the stress test removal as a “significant win” for Canadians.

She said it would allow borrowers to secure the best rate at renewal time and provide them a wider slate of options to choose from.

OSFI intends to formally communicate the new renewal policy in its next quarterly release, on November 21. During the summer, superintendent Peter Routledge acknowledged concerns raised by the Competition Bureau about the need to stress test uninsured mortgage holders.

“If I were a homebuyer facing that, I would feel like it was an imbalance,” Routledge said of the rule, which the Bureau argued was preventing competition among lenders and stopping Canadians from getting the best deal at renewal.

Still, today’s announcement marks a sharp change for the regulator on that issue, with Routledge having indicated an adjustment was unlikely. “If you loosen one underwriting standard, you’d probably have to loosen more, and our mandate calls for us to be fairly vigilant on this,” he said at the time.

OSFI indicated today that it is collaborating with financial institutions to ensure they’re fully prepared for the implementation of the new rules.

Source CMP
By Fergal McAlinden