* Draft guidelines seek to improve lending practices
* Bank regulator says high household debt a vulnerability
By Louise Egan
OTTAWA, March 19 (Reuters) - Canada’s banking regulator wants lenders to be more t ransparent about their mortgage businesses as it seeks to m inimize the risk to the economy from record-high levels of household debt.
Draft guidelines from the regulator released on Monday called for increased disclosure by banks o n their exposure to certain mortgage products and markets, enhanced risk-management practices and treating home equity lines of credit (HELOCs) the same way as mortgages.
The Office of the Superintendent of Financial Institutions has been reviewing bank’s residential mortgage portfolios for over a year and the draft guidelines reflect some of its findings.
“Although financial institution mortgage portfolios in Canada continue to perform well, a number of vulnerabilities in the financial system exist, including high household indebtedness,” said Mark Zelmer, assistant superintendent at OSFI’s regulation sector.
“OSFI is acting in an effort to prevent these vulnerabilities from evolving into problems for the financial system,” he said.
Canada’s housing sector avoided the subprime mortgage bust that drove the United States into recession. But a post-crisis property boom fueled by ultra-low lending rates has some economists and policymakers worried a bubble is forming.
The guidelines released on Monday build on the Financial Stability Board’s “Principles for Sound Residential Mortgage Underwriting” released last October.
OSFI’s guidelines apply to all federally-regulated financial institutions that are involved in residential mortgages and, in some cases, mortgage default insurance in Canada and abroad.
Parties have until May 1 to comment on the draft.
Canada’s household debt-to-income ratio soared to an all-time high last year of 151.9 percent, largely the result of mortgage borrowing. The ratio dipped slightly in the fourth quarter but was still near record high at 150.6 percent.
Toronto-Dominion Bank, the country’s second-largest lender, earlier this month estimated housing to be over-valued by 10 to 15 percent.
Finance Minister Jim Flaherty has intervened three times since 2008 to tighten mortgage rules and a Reuters poll last month showed market players widely expect another move in that direction this year.