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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:

Rob McLister, CMT (email)