New proposed mortgage rules unnecessary, harmful for homebuyers: Fraser Institute


A proposed measure by Canada’s Office of the Superintendent of Financial Institutions (OSFI) intended to reduce mortgage defaults is drawing criticism from the Fraser Institute.

The new rules would require all homeowners – even those who have down payments of 20% or higher and do not require mortgage insurance – to qualify for a mortgage 2 percentage points higher than the rate they are applying for. According to the institute, there is no need for this, and it will do nothing but hurt homebuyers.

“This proposed stress test for financially sound homebuyers in unnecessary and will do more harm than good,” study author and public policy consultant Neil Mohindra said.

“Canadian homebuyers will pay the price.”

Some of the risks include higher loan pricing and reduced mortgage access. As well, competition could suffer.

The Fraser Institute said the rules were developed in part in response to the 2008 recession; the crisis led to new international standards being developed as a response to weak underwriting practices in the U.S.

“Arrears data indicate that underwriting standards in Canada have consistently remained strong,” Mohindra wrote.

“For uninsured mortgages, the homeowner’s equity provides significant protection to the lender against loss.”

The report argues that financial institutions already have in place the ability to prescribe a combination of underwriting criteria to minimize risk. Even without the new rules, according to the report, OSFI already has the rules it needs to address what it may perceive to be weaknesses in underwriting practices.

An August report issued by TransUnion said although mortgage balances have been on the rise, the number of mortgage delinquencies has fallen over the past year.

To read the Fraser Institute report, click here.