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OSFI regulations

Latest in Mortgage News: OSFI leaves stress test rate unchanged

Canada’s banking regulator confirmed it will leave the mortgage stress test for uninsured mortgages unchanged.

In its annual review, the Office of the Superintendent of Financial Institutions (OSFI) said the minimum qualifying rate (MQR) used by federally regulated lenders will remain the greater of 5.25% or the mortgage contract rate plus 200 basis points (2%).

OSFI oversees the mortgage stress test for uninsured mortgages—generally those with a down payment of more than 20%—while the Department of Finance is responsible for the stress test applied to insured mortgages, or those typically with a down payment of less than 20%.

OSFI said it is confident the current stress test will result in lower residential mortgage default rates than would otherwise be the case if lenders did not apply the MQR when originating mortgages for homeowners.

“The minimum qualifying rate for uninsured mortgages has produced a more resilient residential mortgage financing system characterized by low default and delinquency rates,” said OSFI head Peter Routledge. “Holding the MQR at its current rate helps ensure that lenders and borrowers effectively manage the risks associated with residential mortgages.”

What is the minimum qualifying rate?

OSFI’s stress test was first introduced in 2018 as part of its updated B-20 guidelines, which govern mortgage underwriting practices and procedures.

The stress test must be used by federally regulated lenders to qualify new uninsured mortgage borrowers and those wanting to switch lenders using the higher of their contracted mortgage rate plus 200 bps or 5.25%, whichever is higher. This is known as the minimum qualifying rate, or MQR. Insured mortgages don’t need to be re-stress tested when switching to a new lender, OSFI revealed in October.

Most mortgage rates currently available from the big banks and other national lenders are currently higher than 5.25%, meaning borrowers must prove they can afford payments based on a qualifying rate of 7.25% or more.

But with some mortgage rates now falling near or even below 5%, the minimum qualification rate of 5.25% could once again become more important.



nesto to take on Canada Life’s mortgage clients

After announcing its exit from the residential mortgage market in 2022, Canada Life has reached an agreement with nesto to take on the servicing of its existing portfolio.

Montreal-based nesto, which launched in 2018, is a leading digital mortgage company and will begin the servicing and administration of Canada Life’s mortgage portfolio starting in January. As part of the agreement, nesto will also be responsible for Canada Life mortgages at maturity.

“We are very excited about nesto’s award winning customer service platform which was an important factor in our decision to choose nesto,” said Steve Fiorelli, SVP, Wealth Solutions, Canada Life. “We wanted to ensure that our mortgage customers have a best-in-class partner passionate about offering great service for one of their most important investments.”

The partnership will bring nesto’s mortgages under administration to more than $10 billion.

National mortgage arrears rate ticks up

The national average mortgage arrears rate ticked up in September, though it continues to remain just off its all-time low.

After seven straight months of no change, the national arrears rate rose to 0.16% from 0.15%. That works out to 8,140 mortgages out of a total of 5.07 million, according to data from the Canadian Bankers Association.

The arrears rate tracks mortgages that are behind payments by three months or more. While this has ticked up from the all-time low of 0.14% reached last year, it is well below the highs seen during the pandemic, which saw a peak of 0.27% in June 2020.

The arrears rate is highest in Saskatchewan (0.58%), Alberta (0.33%) and Manitoba (0.28%), and is lowest in British Columbia (0.13%), Quebec (0.13%) and Ontario (0.10%).

Average mortgage balance rose 3.9% in Q3

The average outstanding mortgage balance rose to $356,848, according to data from TransUnion. That’s up 3.9% compared to a year earlier.

The agency also reported a dramatic slowdown in mortgage originations in the first half of the year, which were down 27% compared to the active mortgage market in early 2022.

In its own measure of 90+ day mortgage delinquency rates, TransUnion reported a 2-basis-point rise in Q3 to 0.20%. Personal loans saw the largest rise in delinquencies, rising 16 bps to 1.27%, followed by auto loan delinquencies, which were up 12 bps year-over-year to 0.88%.

Ontario’s new blind bidding rules come into force

New rules impacting real estate transactions in Ontario took effect December 1, which are meant to provide more choice and transparency for buyers and sellers.

As part of an update to Ontario’s realtor legislation, the Trust in Real Estate Services Act (TRESA), sellers now have the option to use an open bidding process, which would allow them to disclose submitted bid prices to potential buyers—something that was banned previously.

While the federal Liberals promised to end blind bidding as part of their Home Buyers’ Bill of Rights unveiled in 2022, there remains no national ban, and the new disclosure rules in Ontario are only voluntary.