Office of the Superintendent of Financial Institutions
The safety and stability of federally regulated financial institutions is fundamental to the ongoing health of Canada’s financial system and its economy. OSFI contributes to this stability by fulfilling its mandate to protect the interests of depositors and other creditors of financial institutions. It does this by setting standards that improve banks’ resilience, both under normal conditions and in the event of a financial downturn.
Lenders subject to OSFI supervision hold nearly 80 per cent of all residential mortgages issued in Canada, and residential mortgage loans account for almost 30 per cent of the total assets held by these lenders. Sound mortgage underwriting practices reduce risks to the financial system, and to Canadians who entrust their savings to Canada’s financial institutions.
Sound mortgage underwriting practices require lenders to assess a borrower’s ability to pay their loan under a variety of conditions. A lender should consider potential changes to a borrower’s income and expenses, as well as changes to the market environment including the valuation of the property that is being mortgaged.
This information sheet is updated periodically to provide information about the effectiveness of Guideline B-20 and statistics about some of the areas that we continue to monitor.
In 2012, OSFI introduced its Residential Mortgage Underwriting Practices and Procedures Guideline (B-20) to set out expectations for strong residential mortgage underwriting for federally regulated lenders. The original Guideline was mostly principles-based and included an expectation that lenders would stress test borrowers for adverse conditions.
In 2016, OSFI reminded lenders of its underwriting expectations in the form of a
public letter. When OSFI continued to see examples of relaxed mortgage underwriting at some lenders, it issued an update to Guideline B-20 in 2017 that came into effect in January 2018.
The updated Guideline B-20 clarified and strengthened expectations to address what OSFI saw as increasing risks in an environment of historically low interest rates, high levels of consumer debt and housing imbalances.
The revised Guideline B-20 includes:
The following data, similar to the
note issued in January 2020, represents uninsured mortgages from 20 federally regulated mortgage lenders. These lenders hold more than 99 per cent (by $) of all mortgages subject to OSFI regulation and supervision. The charts below include data up to and including November 2020.
When Guideline B-20 revisions were introduced, lenders made changes that reduced the proportion of mortgages approved for the most highly indebted or over-leveraged borrowers (e.g. mortgage loans that exceed 450% of a borrower’s income.)
OSFI will continue to monitor the performance of these metrics, along with a number of other measures to assess the effectiveness of Guideline B-20.
Insured mortgages have a maximum amortization period of 25 years, while uninsured mortgages subject to Guideline B-20 can be paid over a longer period.
OSFI will continue to monitor the Canadian real estate market, the impacts of COVID on market dynamics, as well as lender practices, particularly in the area of income verification and collateral values. OSFI will be proactive with lenders when it identifies areas requiring attention.
OSFI’s monitoring of the mortgage market includes rates at renewals. Contrary to some speculation when the revised Guideline B-20 was introduced in 2018, there has been no significant spread between the rates offered at origination and those at renewal.
Guideline B-20: Residential Mortgage Underwriting Practices and Procedures
Speech: Sound Mortgage Underwriting: Foundation for Stability - 2020
Speech: Stressing the Stress Test: The Importance of Strong Mortgage Underwriting - 2019
Speech: Guideline B-20: Preparing for the Unexpected - 2019