Office of the Superintendent of Financial Institutions
OSFI is releasing the final advisory, Capital Requirements for Federally Regulated Mortgage Insurers (“Advisory”). This Advisory will come into effect on January 1, 2017 and replace the advisory Interim Capital Requirements for Mortgage Insurance Companies. The Advisory defines a new standard approach for the regulatory capital requirements for mortgage insurance risk. Along with Guideline A - Minimum Capital Test, the Advisory defines the framework within which the Superintendent will assess whether a mortgage insurer maintains adequate capital.
On September 23, 2016, OSFI published a draft version of the Advisory for public consultation. A non-attributed summary of the comments received along with OSFI’s responses is provided in Appendix I. OSFI appreciates the time, assistance, and support of the industry in developing the new capital framework, and would like to thank everyone who provided comments on the draft version of the Advisory during the consultation period. OSFI is open to continuing these discussions and considering any new information in the coming years.
After reviewing the comments received and following additional discussions with the industry, OSFI has made the following modifications to the Advisory:
In addition, edits to the text have been made in certain places to improve clarity and readability.
Should you have any questions, please contact Michael Bean, Managing Director, Capital Division by email at firstname.lastname@example.org or by telephone at (416) 954-0503.
When comparing the requirement for one LTV versus another, it matters whether the property value is held constant or the loan balance is held constant. The relative requirements that naturally flow from the new capital framework assume that the loan balance is constant. When these relativities are adjusted to the more commonly used basis, i.e., property value held constant, they are much greater than they at first appear.
It is also important to note that relativities with respect to LTV in the new framework change as the mortgages age. In particular, the requirements for lower LTV loans decline much more rapidly than those for higher LTV loans. Hence, considering only the relativities at origination gives a distorted view of the capital needed to support lower versus higher LTV mortgages, particularly for a seasoned portfolio of mortgages.