The Office of the Superintendent of Financial Institutions (OSFI) has issued new draft criteria for how much capital federally-regulated mortgage insurers have to put behind their portfolios. If the increased capital requirement is implemented next year, it could result in policyholders paying more for mortgage insurance.
The financial regulator reasoned that the new rules are an attempt to address riskier elements of the country’s mortgage market. New drivers of risk were considered in the making of the draft, such as the creditworthiness of the homeowner, the remaining amortization period and the outstanding loan balance. If approved, the draft takes effect January 1, 2017.
Homeowners with large mortgages secured with small down payments (typically less than 20% of their home’s purchase price) are required to obtain mortgage insurance which compensates lenders for losses should the mortgage default.
“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” OSFI superintendent Jeremy Rudin stated in a release last week.
OSFI asserted that the new capital requirements are there to ensure that mortgage insurers are in a better position to “withstand severe, but plausible losses.”
Genworth Canada MI, one of the country’s biggest mortgage insurers, confirmed that it is currently holding more capital than required by current rules and said that it expects to be fully compliant with the new requirements next year.
The company also warned that the new rules “could lead to a corresponding increase in premium rates.”
Canada Mortgage and Housing Corporation, another major mortgage insurer, told Business News Network
that it supports “efforts that better position mortgage insurers to withstand severe economic challenges.”
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