Mortgage Rule Update: How Will OSFI B21 Impact You?

How will OSFI B21 affect you?

A new round of mortgage regulations has been introduced to the Canadian Housing Market, but don’t panic – this set is much less likely to impact your ability to buy a home.

The Office of the Superintendent of Financial Institutions (OSFI) revealed the proposed regulations today for public review. They’ll remain open for comment until May 23, when a final version will be drafted and implemented. Dubbed B21, the changes target providers of mortgage default insurance, which is required by all buyers paying less than 20 per cent down on their home purchase.

The purpose of the regulations is to create consistency between mortgage insurers’ underwriting practices, and create greater disclosure and transparency.

An Additional Round of Changes

These changes are a follow up to the B20 regulations introduced last summer, the fourth in a series of changes designed to discourage risky borrowing and too-high debt ratios. Those restrictions capped amortizations at 25 years, changed TDS and GDS ratios, and limited LTVs for refinances and HELOCs.

This round is anticipated to have a much less severe impact on the consumer, affecting instead the institutions (CMHC, Genworth and Canada Guaranty) that dole out insurance on high-ratio financing.

“With Guidelines B-20 and B-21, once finalized, OSFI is making clear its expectations for both lenders and insurers operating in the housing market. The industry’s adherence to these principles will contribute to the continued stability of the market,” said Superintendent Julie Dickson in OSFI’s press release.

How Will This Affect Home Buyers?

If you fit into the traditional home buyer mould (employed, decent credit score, fit the debt-to-income ratio risk threshold) – not much will change. While the regulations mean insurers must more deeply scrutinize mortgage borrowers’ qualifications, much of the criteria has already been implemented at the federal level by FI’s from the B20 rollout last summer.

Here are specifications for borrower requirements on the B21 proposal:

Down payments: The rules state insurers must implement a minimum down payment (which already exists at 5 per cent, established in 2008). As well, the source of the down payment calls for greater scrutiny. Buyers can still get away with borrowing their down payments, but rolling any cash back from sign up incentives into a down payment is no longer kosher.

Eligibility: Insurers must carefully determine a buyer’s eligibility, assessing foreign investors, high-risk borrowers and non-Canadian residents.

Credit History: Methods must be established by the insurer for confirming a borrower’s credit background and employment status. A process must be outlined for vetting self-employed buyers as well.

Debt Coverage Services : Consistent formulas must exist for calculating GDS and TDS ratios for mortgage qualification.

It’ll Be Tougher To Buy If You’re Self Employed

Because the new regulations are to create consistency among mortgage insurers and tighten underwriting processes, there will be less room for underwriting “exceptions”. These refer to borrowers who may not qualify based on an insurer’s risk parameters, but compensate in some other way – for example, a self-employed borrower may come up short when proving their income consistency, but this can be forgiven should they make a bigger down payment or have a very high credit score.

In fact, these compensations are often relied upon by self-employed buyers, who don’t have the required employment history, tax records, or stability vouched for by a company or institution. It may prove tougher for these individuals to qualify for a mortgage under the tightened underwriting rules.

Seeing as much as 20 per cent of Canada’s population is self-employed, it could prove interesting to see if the matter will be identified and contested as the public reviews the proposed changes prior to the May deadline.

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6 thoughts on “Mortgage Rule Update: How Will OSFI B21 Impact You?

  1. It took OSFI 3 years to publish this. It was only after feedback received from industry where significant changes were proposed.

    The folks at OSFI just don’t get the basics and continue to demonstrate incompetence with each publication.

    With well over 700 staff, the quality just has to improve or at least be on par with other regulators.

    OSFI has been spending years thinking that the crisis in the U.S. will hit Canada. Speech after speech general comments are made about consumer debt. There is one area within OSFI dedicated exclusively to monitoring housing starts in Toronto using feeds obtained from bank analyst.

    • Nothing too onerous of new. What is the big deal? As I understand it, OSFI has spent several years taking in data from the bank analyst and concluded consumer debt is high and banks are exposed to high loans with greater amortorizations. If this in fact was the conclusion , what is the big deal with B-21. No real change.

  2. It would be better if OSFI continued to plagiarize from the more established regulators. Too much time on this, and with considerable input from industry, it does not say much.

  3. My opinion personally is that these new mortgage rules are not to protect the economy. I don’t believe much that I am told on the media!!

  4. Nothing earth shattering. I don’t think there is any substance to B-21. I know there is a whole team that works on condos. I thought more would of come out of this group.

  5. I agree, several key staff have left the organization since 2013. Replacements are not near the level of the staff that have left, particularly in the insurance space (mortgage and P&C)

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