CMBA: OSFI's proposed stress test tightening based on outdated info

In its response to a federal regulator’s recently ended public consultation on potential adjustments to the stress test, the Canadian Mortgage Brokers Association (CMBA) said that the proposal to further restrict underwriting standards does not reflect current realities.

“The justification for this consultation and proposed alterations to B-20 seemed predicated on an event now in our rear view, namely the pandemic emergency,” CMBA said in its submission to the Office of the Superintendent of Financial Institutions.

CMBA said that it publicized the contents of its submission for the OSFI consultation as the regulator does not have a policy of divulging feedback nor their provenance.

The association said that OSFI should take into account the Bank of Canada’s decision to freeze the benchmark policy rate at 4.5% for two meetings in a row.

“The [BoC] has chosen to ‘do no further harm’ by pausing its 450-basis-point policy rate hike, which increased it 1,700% in just 12 months, and OSFI should also consider pausing changes,” CMBA said.

Crucially, the conditions for tightening were already apparent during the height of the pandemic mobility restrictions a few years ago.

“The ‘near-term issues’ OSFI cites as a reason for this consultation were already known in late 2020, yet not acted upon then,” CMBA said.

Potential ripple effects pose substantial risk, as well.

“Should OSFI further tighten B-20 mortgage lending guidelines on [federally regulated financial institutions] under its purview, smaller banks and private lenders will be asked by borrowers and the system as a whole to do even more,” CMBA said.

“The social impact of B-20 – the mortgage stress test – and other restrictive policies emanating from Ottawa is still growing, and making B-20 tougher will add to the problem. If larger numbers of people are affected by further tightening of B-20 mortgage stress testing, particularly if they disproportionately represent identifiable groups within our society, OSFI’s policy should allow for exemptions to protect against the unacceptable marginalization of creditworthy individuals.”