Bank regulator stands by mortgage stress tests
Canada’s banking regulator defended tougher mortgage underwriting rules blamed recently for a slump in the nation’s housing market, but left open the possibility that regulations could ease if conditions change.
Carolyn Rogers, the No. 2 at the Office of the Superintendent of Financial Institutions, said the tougher mortgage lending rules remain a prudent way to guard against risks in the the marketplace. Still, the regulator is continually assessing conditions.
“OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them,” Rogers said in a speech Tuesday in Toronto.
The country’s banking regulator has been facing pressure in particular to ease up on stress tests that require home buyers to prove they can handle payments at 200 basis points above the contracted rate. The rule came into effect in January 2018, triggering a sales slow down in the country’s two priciest markets — Toronto and Vancouver.
Rogers said that while interest rates have increased since the measure was introduced, borrowing costs still remain historically low and personal debts remain high. There could also be changes to income or other home owning expenses that make it difficult to pay off mortgages.
“It’s prudent to have a buffer for these changes as well,” she said.
At the same time, the introduction of the stress tests themselves were an adjustment to a “shift in risks” in the financial system and things could change.
“Should that margin of safety be monitored, and should changes be considered if conditions in the environment change? Of course they should,” she said.