QPL Articles
Proposed ban on bundled mortgage loans
By Jonathan Ablett | July 28, 2017
The Office of the Superintendent of Financial Institutions (OSFI), Canada’s financial regulator, is bringing to its attention the practice of regulated financial institutions teaming up with unregulated lenders in order to avoid rules intended to restrict risky mortgage lending.
Current rules prevent banks from lending over a certain percentage of equity in a residential mortgage – 65% in the case of customers with bad or nonexistent creditors, or 80% in the case of others (over this figure, insurance is required from CMHC or a private equivalent). Regulated financial institutions must also have minimum down payment requirements unless insurance is provided.
However, unregulated lenders, termed Mortgage Investment Corporations (MICs), are not subject to these rules. Federally regulated financial institutions therefore coordinate with these MICs to offer mortgage packages which, if offered by the regulated lender only, would be offside.
It is estimated that the share of mortgages carried by unregulated lenders has gone from 6.6% in 2007 to 12.5% in 2015.
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