Real estate secured lending

Real estate secured lending, including mortgage insurance, is a core business activity of many of the institutions that we regulate. This critical function supports a sound housing finance system in Canada.

Monitoring risk

Risks in the Canadian housing and residential mortgage markets can impact financial stability. We monitor risk trends to understand how they might affect the lenders and mortgage insurers that we supervise.

We study potential impacts to assess the effectiveness of our work. This analysis supports our regulatory guidance development and supervisory risk assessments, including capital requirements and the minimum qualifying rate.

Read our latest Annual Risk Outlook for more insight on top risks.

Transcript - OSFI's Role in Housing Finance

[OSFI logo]

The Office of the Superintendent of Financial Institutions, or OSFI for short, is responsible for regulating and supervising federally regulated financial institutions like banks, insurance companies, as well as pension plans, to ensure they are financially sound and managing their risks. This contributes to Canadians’ confidence in the financial system.

Residential mortgages help many Canadians become homeowners, and they are also one of the largest exposures that banks and other lenders carry. That means OSFI’s work has an important impact on the housing market!

Since the global financial crisis of 2008, OSFI has expected the lending institutions we regulate to maintain very high underwriting standards for the mortgages they issue. When granting a mortgage, lenders must take steps to judge whether a borrower can continue to pay their debt over the life of the loan. Otherwise, a borrower could default on their payments and cause financial losses to the lender. If financial losses are widespread and impact many lenders, this can threaten financial stability in Canada, harming jobs and our economic security.

Our expectations for residential mortgage underwriting standards are set out in Guideline B-20. Essentially this is the guideline that informs lenders about the standards that should apply when approving mortgages. Guideline B-20 allows financial institutions the flexibility to apply OSFI’s principles based on their size, complexity and the nature of their business. Ultimately, the terms of any mortgage contract will be a decision that is made between the lender and the borrower.

One of the better known elements of B-20 is the Minimum Qualifying Rate, or MQR. This is sometimes referred to as the “stress test”. To know whether a borrower could handle a higher payment in the future— in case of rising interest rates or changes in income— OSFI expects lenders to use a higher interest rate to assess a borrower’s ability to repay a mortgage than the rate the borrower will actually pay. This MQR creates a buffer, or margin of safety, that increases the odds that a borrower will remain financially resilient through the variety of changes that can occur over the life of a loan. This means that if a borrower faces a loss of income or if there is a sharp rise in interest rates, there is a better chance they can keep up with their mortgage payments.

We know that Canadians trust our financial system to help them build their lives and futures and we are working hard to maintain that trust.

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Managing risk

A primary risk we expect mortgage lenders to manage is credit risk. This is the risk of financial loss caused by a borrower’s failure to meet their obligations to the lender, including loan repayment.

We expect lenders to manage credit and other lending risks:

  • During the underwriting stage: when lenders grant loans to borrowers
  • During the account management stage: throughout the life of the loan

Guideline B-20 sets out our expectations for prudent residential mortgage underwriting for lenders.

Mortgage insurers provide mortgage default insurance to lenders. This is required when the down payment on a property is less than 20% of the home purchase price. We expect mortgage insurers to manage the risk of financial loss from a lender's claim, after any recoveries (for example, from sale of the property).

Did you know? Government-backed mortgage default insurance must also meet the requirements under the Government of Canada’s legislative framework for mortgage insurance.

Guideline B-21 sets out our expectations for prudent residential mortgage insurance underwriting and related activities for mortgage insurers.

Preserving financial stability

We regulate and supervise lenders and insurers to make sure they effectively manage the risk of financial loss. This helps to support a well-functioning residential mortgage market and prevent widespread losses across the financial system. This in turn reduces risks to the broader Canadian financial system and contributes to financial stability.