It’s good news for homeowners, and, indeed, investors, with the federal banking regulator now clarifying its position on re-qualifying borrowers at renewal — effectively maintaining the status quo.
“The following provides a brief description of OSFI’s decisions on key issues, which will be reflected in the final Guideline,” writes the regulator in a letter sent to federally-regulated financial institutions Wednesday. “Re-qualification at Renewal – current practice regarding residential mortgage renewals has served FRFIs well. OSFI agrees, for example, that having a good payment record is one of the best indicators of credit worthiness. OSFI, therefore, expects that FRFIs themselves will remain responsible for deciding what level of review to place on borrowers’ qualifications at the time of renewal.”
That’s good news for small investors, say analysts, pointing to their use of personal mortgages to fund acquisitions and their cash flow issues.
The OSFI letter confirms speculation from mortgage brokers and consumer advocacy groups, alike, that the regulator was now prepared to hold its fire on the most contentious component of draft guidelines introduced in early spring and focused on tightening mortgage underwriting standards.
At the same time, the message confirms that OSFI will uphold its guideline reducing the maximum loan-to-value ratio for HELOCs to 65 per cent, although it stopped short of forcing lenders to attach a specific amortization to those lines of credit.
Still many bankers and mortgage brokers have been more concerned about the possibility of lenders having to re-qualify clients at each and every renewal.
The OSFI decision may leave some room for lenders to do just that, however.
“FRFI renewal practices should be articulated in internal policies governing their underwriting of residential mortgage loans,” writes OSFI. “FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.”