Bank Watchdog Weighs Limits on Canada Firms’ Risky Mortgages

Canada’s banking industry regulator will consider limiting how much firms are able to lend to riskier homebuyers as part of a review intended to safeguard the financial system from a housing slump, Bloomberg News reported. The regulator is proposing restrictions on the volume of mortgages made available to those who are seeking to borrow amounts that are far in excess on their incomes. It’s part of a regular consultation on residential mortgage underwriting standards, which started Thursday. Canada’s bank watchdog, the Office of the Superintendent of Financial Institutions, has taken a more assertive approach to managing financial system risks in recent months. In December, it raised a key capital requirement for the banks, and it recently rejected calls to weaken a “stress test” that homebuyers go through to qualify for a mortgage. The capital-rule change prompted Bank of Montreal to sell about $2.3 billion in stock and raised questions about whether other lenders may need to follow suit. Thursday’s consultation paper suggests financial institutions may face future curbs on loans that are large relative to a borrower’s income. One definition of a high loan-to-income deal is when the homebuyer borrows more than 4.5 times her annual income. Read more.
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