OSFI Issues Strong Reminder On Mortgage Lending Practices

The high-paced growth of residential home prices, particularly in the Vancouver and Toronto markets, is continuing to generate concern both from the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI). In its semi-annual Financial System Review, released on June 6^th, the Bank noted that the vulnerability of the financial sector continues to rise due in part to strong mortgage credit growth and rapidly increasing home values in some regions.

On July 7^th, OSFI took the somewhat unusual step of publishing a letter that was sent to all federally-regulated financial institutions reminding them of OSFI's expectations for prudent mortgage lending practices as described in Guideline B-20.  In particular, the letter addresses OSFI's expectations for income verification, non-conforming loans, debt servicing ratios, appraisals and risk appetite.