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 States. 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 downturn.