Talking at World Danger Institute summit on Wednesday, Routledge mentioned he was frightened that the requirement by lenders to run the “OSFI stress check” is making Canadians really feel the regulator is simply too instantly concerned of their affairs.
“If I had been that individual, I’d really feel regulated by OSFI. And that’s what we hear from Canadians. And I don’t suppose that was ever a part of its intent.”
The priority helped result in OSFI’s announcement final week that beginning Nov. 21, it might not require a stress test for uninsured mortgages when debtors are making a straight switch between lenders, which means they aren’t altering issues like their amortization or borrowing quantity.
Solely between 2% and 6% of debtors make such a change, so whereas it was one thing Routledge beforehand maintained was a part of sound underwriting practices, the company not noticed it as price the associated fee.
“It wasn’t a sufficiently big prudential threat to justify that look of unfairness,” he mentioned.
Why OSFI determined to vary the stress check
The elimination of the stress check requirement comes because the regulator can also be taking a look at a broader change away from the B-20 stress check on particular person debtors, to a system that may regulate mortgage threat at a financial institution portfolio degree.
The regulator will subsequent yr be testing the choice system, which units limits on how a lot of a financial institution’s mortgage ebook could be taken up by debtors with a excessive loan-to-income ratio. The regulator will then determine whether or not so as to add it to the present mortgage guidelines, or change the present stress check.
Whereas the brand new system would equally restrict focus of threat, and even do a little bit of a greater job, it might additionally benefit from seeming to be much less instantly utilized on the particular borrower degree, mentioned Routledge.
“I feel OSFI will sacrifice much less confidence and credibility if we follow our knitting, and solely cope with the monetary establishments versus being perceived to cope with people.”
