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OSFI relieves investors of re-qualifying threat

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Guest | 07 Jun 2012, 01:38 PM Agree 0

“The following provides a brief description of OSFI’s decisions on key issues, which will be reflected in the final Guideline,” writes the regulator in a letter sent to federally-regulated financial institutions Wednesday. “Re-qualification at Renewal – current practice regarding residential mortgage renewals has served FRFIs well. OSFI agrees, for example, that having a good payment record is one of the best indicators of credit worthiness. OSFI, therefore, expects that FRFIs themselves will remain responsible for deciding what level of review to place on borrowers’ qualifications at the time of renewal.”
That’s good news for small investors, say analysts, pointing to their use of personal mortgages to fund acquisitions and their cash flow issues.
The OSFI letter confirms speculation from mortgage brokers and consumer advocacy groups, alike, that the regulator was now prepared to hold its fire on the most contentious component of draft guidelines introduced in early spring and focused on tightening mortgage underwriting standards.
At the same time, the message confirms that OSFI will uphold its guideline reducing the maximum mortgage-to-value ratio for HELOCs to 65 per cent, although it stopped short of forcing lenders to attach a specific amortization to those lines of credit.
Still many bankers and mortgage brokers have been more concerned about the possibility of lenders having to re-qualify clients at each and every renewal.
The OSFI decision may leave some room for lenders to do just that, however.
"FRFI renewal practices should be articulated in internal policies governing their underwriting of residential mortgage mortgages," writes OSFI. "FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.”
For the full OSFI letter, click HERE.
  • Doug Boswell | 12 Jun 2012, 04:07 PM Agree 0
    It was welcome news to the mortgage industry that OSFI will not go ahead with their initial proposal of re-qualifying clients at the time of renewal. Homeowner could run into an unexpected situation at renewal where one of them might have been laid off from their job or lost their job. Perhaps they had a part-time job to tide them over. This income or EI would not count for qualifying income so they might not now have enough income to support their mortgage amount. Through no fault of their own they possibly could have lost their home under the OSFI proposal. Thankfully OSFI listened to the arguments against this proposal.
  • Paul Kondakos | 13 Jun 2012, 03:17 PM Agree 0
    Thankfully OSFI came to their senses regarding the proposal of "re-qualification at renewal". This would have had potentially disastrous consequences for both investors and homeowners alike.

    People's financial situations are fluid and tend to change year to year. Given that qualification parameters tend to be pretty stringent, a slight change to someone's financial situation, be it greater debt or slightly less income, could throw off their TDS (Total Debt Service) ratio and put them in a position where they no longer qualify for a mortgage that they have been paying on time for the past 5 years.

    My personal belief is that once you have passed the hurdle of qualifying for a mortgage, your payment history is all the banks/mortgagee needs to rely on to determine your creditworthiness going forward. If you are persistently late in making your mortgage payments, then I believe the mortgage holder should have the option of making you re-qualify for the mortgage to ensure that you can service the debt going forward.
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