Vancouver Sun ePaper

Watchdog strengthens rules on loan products

DENISE PAGLINAWAN

Canada's top banking regulator is tightening the rules around a handful of real estate lending products over concerns that persistently high consumer debt levels could leave lenders more vulnerable to negative economic shocks.

In an advisory issued Tuesday, The Office of the Superintendent of Financial Institutions (OSFI) outlined regulatory expectations regarding three classes of products, most notably combined loan plans (CLPs).

“The current Canadian economic environment is riskier for regulated financial institutions given higher Canadian consumer debt loads (and) increased borrowing costs in volatile housing prices, therefore, OSFI is taking this targeted action to reduce systemic risk in the banking sector by clarifying our expectations,” senior officials said in a media briefing. Combined loan plans, which offer a traditional amortizing mortgage along with a revolving home equity line of credit, have become the predominant uninsured real estate lending offering, the agency said.

Under the new advisory, any lending above the 65 per cent loan-to-value threshold would have to be both amortizing and non-readvanceable. In other words, borrowers would see a portion of their repayments go toward reducing the outstanding debt until the combined loan fell back to the 65 per cent level.

OSFI said the changes would have no immediate effect on the way most CLP borrowers use their products and that consumers will not see an increase to their monthly payment requirements.

The changes would come into effect in late 2023.

CLPs above the 65 per cent limit account for $204 billion of the $1.8 trillion total outstanding residential mortgages as per Bank of Canada's March 2022 data

FP VANCOUVER

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2022-06-29T07:00:00.0000000Z

2022-06-29T07:00:00.0000000Z

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