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Wednesday, July 27th, 2016

Banking watchdog backs off its get-tough approach to mortgage lending

By Susan Pigg Business Reporter

Ottawa’s banking watchdog has backed down on one of its toughest proposals for reining in household debt — making sure that Canadians’ credit risk is evaluated every time they renew their mortgages.

In an unusual “interim update” of tighter lending guidelines it hopes to issue this summer, the Office of the Superintendent of Financial Institutions says it now agrees that “having a good payment record is one of the best indicators of credit worthiness.”

Instead of renewal reviews, federally-regulated banks and financial institutions will be expected to “periodically” evaluate the credit risk of their customers, OSFI says in a seven-point clarification of new guidelines around lending rules it will make public this summer.

OSFI is holding firm, however, in its efforts to rein in Canadians who are using their homes as virtual ATMs. Homeowners will be restricted to borrowing no more than 65 per cent of the value of their properties via home equity lines of credit that have skyrocketed in popularity the last decade.

But those HELOCs can remain open-end and won’t have to be amortized like a mortgage, as OSFI had originally been considering, it notes in the three-page response released Wednesday.

The unusual update is seen as a positive sign that OSFI, and Ottawa, listened to the more than 70 individuals and associations who filed comments, some of them concerned a get-too-tough approach could have a devastating impact.

“Who is going to tell someone who’s been making all their payments, but now has a different job or a lower income, that their home could be taken away from them?” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals whose association raised concerns.

“It would have adversely affected the housing market,” he added.

The Canadian Bankers Association praised OSFI’s “openness” in clarifying the direction it’s aiming with the guidelines, expected to be released in late June or early July.

Canada’s banks have a strong record of careful, prudent lending … and we mean to keep it that way,” said association president Terry Campbell.

“Canadians have also demonstrated that they are prudent borrowers.”

Less than half of one per cent of all mortgage holders with Canada’s banks have gone more than three months without making a payment, a number that has remain constant for decades, regardless of interest and unemployment rates, he noted.

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