Canadian Compliance Group
Canadian Compliance Group

OSFI: Draft Guideline B-20

On July 6th, OSFI released draft changes to its Residential Mortgage Underwriting Practices and Procedures Guideline (B-20) for public comment.  Comments on the draft changes must be submitted by August 17th and OSFI plans to finalize the Guideline sometime in 2017.

 

OSFI highlighted the following three changes:

 

Requiring a qualifying stress test for all uninsured mortgages

  • The draft introduces a requirement that a borrower under an uninsured mortgage be able to qualify for the mortgage based on an interest rate that is 2% higher than the proposed contract rate (currently, there is a qualifying test for insurer mortgages that requires that the borrower qualify for the loan based on the Bank of Canada posted 5-year rate)
  • Requiring that Loan-to-Value (LTV) measurements remain dynamic and adjust for local market conditions where they are used as a risk control, such as for qualifying borrowers
  • Expressly prohibiting co-lending arrangements that are designed, or appear to be designed to circumvent regulatory requirements 

 

In addition to these changes, our review noted the following:

 

  • Additional items have been added that should be addresses in a RUMP
  • An expectation has been added for FRFIs to ascertain and document the purpose for a loan as a “key consideration in assessing credit risk”
  • An expectation that FRFIs will maintain mechanisms for the detection, prevention and reporting of all forms of fraud or misrepresentation in the underwriting process, including reporting suspected or confirmed fraud to the mortgage insurer
  • An expectation that FRFIs will use “rigorous efforts” to confirm income verification and more detailed expectations respecting income verification
  • For loans that are supported by a guarantor or co-signer, an expectation that FRFIs will use the same rigour to assess the guarantor or co-signed as it does for the borrower
  • The expectation regarding insured mortgages that the loan will be stress tested based on the Bank of Canada 5 year rate is replaced with a requirement that the FRFI adhere to the instructions of the mortgage insurer
  • An expectation that FRFIs will maintain and implement a framework for critically reviewing and challenging the assumptions and methodologies underlying property valuations and appraisals
  • An expectation that FRFIs will put in place a robust process for regularly monitoring, reviewing and updating their Loan to Value limits
  • Expanded expectations for “non-conforming loans (conventional mortgages that have higher risk attributes or deficiencies) 
  • An expectation that FRFIs will adjust HELOC limits based on revised property values

 

The draft Guideline contains further elaboration on these points and other more minor adjustments.

 

 

 

Board Training

 

One of the features of the OSFI Corporate Governance Guideline, is an expectation that directors will seek out both internal and external education opportunities.  With almost 30 years experience with bank and insurance company regulation, we have the knowledge and background to assist directors to understand current regulatory issues and developments, OSFI expectations for directors and the regulatory framework within which the company operates, all essential information for directors.

 

We can assist your directors with a quick, cost effective training program that will give them the comfort of knowing that they are fully meeting their responsibilities and the regulator's expectations.

 

Call us to discuss your director training needs.

 

 

 

CCG and Resolver join forces

 

We are extremely excited to have partnered with :Resolver to build a powerful turn-key solution for compliance risk management for the Canadian banking and financial services sector. Resolver’s integrated platform supports application areas including Risk Assessment, Internal Control, Internal Audit, Compliance Management, Enterprise Risk Management and Incident Management. Resolver’s team is comprised of security, risk, and compliance experts supporting customers across 100 countries with offices in North America, United Kingdom, the Middle East, and Australia.

 

Read more.

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