The Appraisal Institute of Canada (AIC) welcomes the Office of the Superintendent of Financial Institutions’ (OSFI) plan to reduce mortgage finance underwriting that over-relies on the equity of a property, without due consideration to the borrower’s capacity to pay, according to the AIC.
In its most recent newsletter, OSFI reported that B-20 guidelines have yielded positive results, including lower average loan-to-value ratios for mortgages, and fewer mortgages being approved for over-leveraged individuals.
“Although reduced, there continues to be evidence of mortgage approvals that over rely on the equity in the property (at the expense of assessing the borrower’s ability to repay the loan). OSFI will be taking steps to ensure this sort of equity lending ceases, the OSFI newsletter stated”
OSFI’s B-20 guidelines require a balanced approach to mortgage underwriting and have served Canadians and the housing market very well by enhancing market stability and supporting efforts to mitigate consumer indebtedness, the office said. Prudent mortgage underwriting requires appropriate valuation of the subject property; appraisals conducted by AIC designated appraisers provide lenders and borrowers with unbiased, independent opinions of market value.
“Our members’ work helps support a stable and healthy market. The B-20 guidelines require lenders to utilize appropriate numbers of on-site inspections and third-party professional appraisals to verify the value of collateral. On site appraisals help to mitigate risk for both the lender and borrower in cases when there is a high loan-to-value ratio, when markets are in flux, or when the creditworthiness of the borrower may be lacking,” AIC President Peter McLean said.
“The regulatory oversight provided by OSFI has allowed Canadians to benefit from stable markets; we have not seen some of the fluctuations and volatility that have plagued other countries. Our organization strongly supports B-20 and has called on governments across the country to mandate their application to all residential mortgage lending,” AIC CEO Keith Lancastle said.