Mortgage Rule Update: How Will OSFI B21 Impact You?
April 21 2015 Posted by Tracy Bennett
If you are buying a house and are putting less than 20% down, then you are financing a high ratio insured mortgage. This means that your mortgage and lender have to comply with the new government rules of B21. B21 is a set of regulations being proposed by OSFI (Office of the Superintendent of Financial Institutions), with respect to high ratio mortgage default insurance in Canada.
The purpose of the bill is to see more financial disclosure and consistency of lending requirements and documents between lenders and mortgage insurers like CMHC, Genworth and Canada Guarantee.
B21 follows B20, which was introduced last year. You may recall when CMHC announced reducing amortizations to 25 years, adjustments to GDS and TDS ratios and restrictions to maximum LTVs on refinance and secondary financing products. Well, these changes were in direct reaction to B20 which was deployed to combat risk and over-aggressive lending practices.
In fact, the goal of both B20 and B21is to ensure stability in the market, and to prevent a housing bubble or future recession. It is commonly known that Canadians are carrying record levels of unsecured debt, these policies will assist lending practices and to ensure that homeowners finance their homes responsibility and within their budget set by B21.
Borrower requirements under B21 include:
• Down payment: more scrutiny will be placed on down payment and its sources, tracing funds from accounts if money is moved to verify its ownership
• Eligibility: more scrutiny with respect to eligibility of foreign investors, high risk borrowers and non-residents
• Credit: insurers must directly verify a borrower’s credit history and employment
• Self-employed buyers: an individual process must be set-up for self–employed borrowers and all effort to justify the income and the business with documentation and review
While these guidelines relate to insurers, the changes will have a trickle-down effect to the consumer. The documentation requested is more than your last mortgage. These additional measures will see insurers conducting extra due diligence and rejecting mortgages that shouldn’t be insured in the first place. This protects our lending, defaults, and economy in the long run. It’s hard for the consumer to understand that these are positive measures, as documentation requirements are frustrating but necessary under these new guidelines.
As a Mortgage Agent, for many institutions, let us help you through this process. We will ensure that you meet the guidelines and lending requirements to mitigate a successful funding.