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To make households, the economy and the financial system less vulnerable to risk, Finance Minister Flaherty also asked OSFI to prepare guidelines for a safer housing finance system.

In March 2012, OSFI released draft guidelines for residential mortgage underwriting practices and procedures which will likely become part of new regulations for federally-regulated institutions.

On June 6, OSDI released an interim update on the guidelines. The guidelines now include a requirement that lenders develop internal policies governing their underwriting of residential mortgage loans.

Lenders will remain responsible for deciding what level of review o place on borrowers’ qualifications at the time of renewal, which may include:
• The borrowers’ employment status and income, even for borrowers renewing their mortgage, and also take into account if the borrowers are retired, self-employed, or receives commissions, bonuses, overtime and /or tips;
• The source of down payment; and
• The variable expenses including heating costs, home insurance and taxes.

Lenders will be required to periodically review (not necessarily at renewal) borrowers’ credit risk and repayment capacity.

For home equity lines of credit, new appraisal processes will be used. Home equity lines of credit will also be limited to 65 per cent of a property’s value.

Minister Flaherty has tightened mortgage rules three times in the past four years and is also expected to introduce new regulations in the next year to raise the minimum down payment from the current five per cent and to reduce the maximum amortization period to 25 years from the current 30 years. 

Article from Realtor Link, June 15, 2012