Buyer beware: OSFI clamping down on bundled loans

Would-be home buyers have been advised to exercise due diligence, as Canada’s financial regulatory body has announced that it will be cracking down on so-called “bundled” loans.

Bundled loans package a primary mortgage with a second offering from an unregulated group. In the wake of stricter rules, such a pairing has gained popularity as a way for some lenders to sidestep existing bylaws that place a cap on the amount that mortgage providers can lend.

Office of the Superintendent of Financial Institutions assistant superintendent Carolyn Rogers warned mortgage providers under its jurisdiction against providing such products.

“They are rules. They are not guidelines, and they are not principles. We absolutely expect regulated entities to be adhering to them,” Rogers said last week, as quoted by Reuters.

“Anytime a regulated entity is or appears to be designing a product or an approach that is, by its design, circumventing the rules we would take issue with that.”

In February, Fitch Ratings predicted that mortgage rates will remain at record-low levels for the first six months of this year.

The credit rating agency’s 2017 Global Housing and Mortgage Outlook noted that any possible increases would be minimal at best, and that inflation will remain at a relatively manageable 2 per cent.

Bank of Canada Deputy Governor Sylvain Leduc recently noted that indebtedness is rising the most among those already deep in debt, “putting people under stress, under duress.”

“House prices are going up, people are reaching maybe a bit more and getting a bit more indebted,” Leduc said. “So having to repay their loans, their debt, might be more complicated, putting stress not only on the macroeconomy but also on the financial system as a whole.”


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