Mortgage Industry Update: OFSI’s B21 Mortgage Regulation and What it Means to You

If you are financing high ratio insured mortgages you are no doubt, on some level, aware of B21. B21 is a set of regulations being proposed by the OSFI (Office of the Superintendent of Financial Institutions) with respect to high ratio mortgage default insurance in Canada.

The purpose of the bill is to see more disclosure and consistency between lenders and mortgage insurers like CMHC.

B21 follows B20, which was introduced last year. You may recall when CMHC announced reducing amortizations to 25 years, adjustments to GDS and TDS ratios and restrictions to maximum LTVs on refinance and secondary financing products. Well, these changes were in direct reaction to B20 which was deployed to combat risky/over-aggressive lending practices.

In fact, the goal of both guidelines was to ensure stability in the market, and to prevent a housing bubble or future recession. It is commonly known that Canadians are carrying record levels of unsecured debt and this ensures that homeowners are forced to finance their homes responsibility and within their means.

According to an article in Rate Supermarket, the new borrower requirements under B21 include:

•  Down payment: more scrutiny will be placed on where down payments come from
•  Eligibility: more scrutiny with respect to eligibility of foreign investors, high risk borrowers and non-residents
• Credit: insurers must directly verify a borrower’s credit history and employment
• Self-employed buyers: an individual process must be set-up for self–employed borrowers
• While these guidelines relate to insurers, the changes will have a trickle-down effect for you, your brokers and their clients. At the end of the day these additional measures will see insurers helping, and not hindering, by forcing them to take extra due diligence measures to reject out mortgages that shouldn’t really be insured in the first place.

More than changes to rules, these changes seem to encourage more due diligence on the part of the insured, which protects our economy and in the end is good for all.

For more information about B21 and its impacts please contact Teranet today by calling 1.855.787.8439.