| OTTAWA, April 14
OTTAWA, April 14 Canada's financial regulator
issued draft guidelines on Monday for mortgage insurers to
reduce risk in the housing market, a move analysts said could
make it slightly harder for home buyers to get a loan.
The Office of the Superintendent of Financial Institutions
(OSFI) guidelines apply to the country's three mortgage
insurance companies: the state-owned Canada Mortgage and Housing
Corp (CMHC), which insures 70 percent of residential mortgages
in the country, and private companies Genworth MI Canada
and Canada Guaranty.
The main thrust of the proposal for the C$730 billion ($664
billion ) industry is that insurers should be more proactive in
ensuring that banks they deal with use sound mortgage
underwriting practices. These include more rigorous income
verification of borrowers similar to that used in the United
OSFI imposed stricter mortgage underwriting guidelines for
federally regulated banks in June 2012. Those rules governed
relations between banks and borrowers. This new set of rules
governs dealings between insurers and banks, including
institutions not under OSFI's supervision.
Ben Rabidoux, a housing market analyst and president of
North Cove Advisors market research firm, said the changes could
help slow down the housing market. But he noted that insurers
have freedom to interpret and implement the principles, which
could soften the impact.
"On balance, this is probably going to marginally affect
credit availability in Canada," he said. "And then consequently
it would be a pretty modest drag on the resale market if it's
implemented as currently drafted."
Mortgage insurers have until May 23 to provide feedback.
Canada's housing market has boomed unsteadily for five
years, raising fears of a U.S.-style crash. The market slowed at
the end of 2013 and observers waiting to see how big the
resurgence will be during the busy spring buying season.
OSFI's guidelines address a concern that mortgage insurers
are more vulnerable to mortgage defaults than lenders are, and
could suffer big losses if there is a crash or a sudden economic
MORE DATA, BETTER STANDARDS
Insurers should assess the financial soundness of the lender
and its mortgage lending practices as well as its ability to
provide data on the performance of its mortgage loan portfolio,
according to the proposed rules.
They would also be required to outline for lenders the
criteria for mortgages that they would normally insure,
including the maximum loan-to-value ratio and maximum
A major change is that insurers would need to tell lenders
how to verify a home buyer's income and their income history.
"As it stands, borrowers can get a prime, CMHC-insured
mortgage with as little as a pay stub and a job letter,"
CMHC is by far the biggest player in the residential
mortgage insurance industry, and it is growing fast. Banks under
OSFI's supervision must insure mortgage loans with a down
payment of less than 20 percent. Other banks often use CMHC
insurance to access its securitization programs.
The federal government, which guarantees 90 percent of a
private insurers' residential mortgage loans, has already taken
several measures to rein in CMHC's insurance business. Former
Finance Minister Jim Flaherty, who died last week, openly mused
about privatizing that part of CMHC.
The mortgage insurance market had insured loans in-force of
C$730 billion ($664 billion ) in 2012, according to an
International Monetary Fund report in February. OSFI declined to
provide more recent information.
($1 - $1.10 Canadian)
(Reporting by Louise Egan; Editing by Frank McGurty and Richard