THE OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS RISK OUTLOOK!

The Office of the Superintendent of Financial Institutions (OSFI) has released its first Annual Risk Outlook report, emphasizing the “unprecedented run-up” in home prices that has led to overleveraged borrowers and overexposure to a market correction.

Although lenders are believed to be “well-capitalized and appear to be financially resilient,” the regulator said “such a sequence of events could lead to borrower defaults, a disorderly market reaction and broader economic uncertainty and volatility.”

As such, the OSFI is considering expanding the application of stress tests to include reverse mortgages, mortgages with shared equity and combined loan plans as these products become increasingly common. The current stress test sets the qualifying rate for mortgages at 5.25% or the contract rate plus 2% – whichever is higher.