B-21. Here at Last



B-21There’s been so much speculation on whether OSFI’s long-awaited B-21 mortgage insurer guidelines will slow the housing market.

Well, now that we’ve seen the draft, that seems unlikely. In fact, B-21 is simple, practical and sound policy, and most of the guidelines have already been adopted by lenders and insurers.

Here’s what’s new:

  • Cash-back down payments will soon be extinct on insured mortgages.
    • Credit unions are the only ones left doing this form of 100% financing (ever since OSFI’s B-20 prohibited it at federally regulated lenders).
    • Borrowed down payments are still allowed, however.
  • B-21 puts heightened focus on the consistency of underwriting decisions.
    • This might lead to fewer underwriting exceptions with insured mortgages.
  • Lenders’ underwriting will be increasingly scrutinized
    • Sample audits of individual files could become more frequent.
    • OSFI says lenders with “proportionately higher levels of delinquencies and claims…” should be more scrutinized.
    • Repercussions may stiffen for lenders who cut corners when underwriting. B-21 explicitly requires insurers to give them less latitude (e.g., fewer exceptions, deal submission limits, etc.). Despite that already being standard practice, B-21 creates even greater incentive for lenders to cross every “t” and dot every “i” on insured mortgage applications (and when reviewing borrower documentation).
  • Data disclosure will increase
    • Thankfully, insurers will now be required to publicly disclose more risk-related statistics every quarter (e.g., the percentage of insured borrowers putting down only 5% at the time of origination.)

In short, B-21 provides incrementally more confidence in the stability of Canada’s housing finance system. From a pure lending standpoint, it could have been a lot more restrictive.


Sidebar: If you want to comment on these guidelines, you can do so here until May 23, 2014: B21@osfi-bsif.gc.ca.


Rob McLister, CMT (email)

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Comments

  1. Comment avatar

    Lior, Mortgage Edge    

    Well, it could have been worse. The insurers already stress test their portfolios so I do not think the B-21, when it becomes policy, will have a big impact. It will definitely put pressure on homebuyers who have a small down payment even if they meet the lender’s criteria. Would principle #4 apply to bulk insurance as well?

     
  2. Comment avatar

    Mark    

    Could B21 have been more anti-climactic?
    I get the sense that regulators will give the mortgage market a well deserved break after this.

     
  3. Comment avatar

    Mike from Markham    

    For those whom might want to read B21 directly from OSFI here is the link. To CMT why wouldn’t you have done this? At the time of this writing the cover at the top of the article was not hot linked.
    http://www.osfi-bsif.gc.ca/Eng/wn-qn/Pages/b21_20140414.aspx
    [Editor Note: Mike, the source document was indeed linked. Click on “seen the draft” in the second paragraph.]

     
  4. Comment avatar

    Robert McLister    

    Hi Lior, It seems it would.

     

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