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OSFI Won’t Pursue Mortgage Debt Service Coverage Restrictions

CANADA
  • Following an initial consultation period, the OSFI says it won’t pursue debt service coverage restrictions, preferring a strengthened principles-based approach instead.
  • “After careful consideration of stakeholder feedback, we agree that regulatory limits on debt service coverage should not be pursued. While such limits could result in greater consistency, they would remove too much risk-based decision-making and risk ownership from lenders. While clear limits apply to insured mortgages, under law, they generally serve other public policy objectives beyond prudential soundness and financial stability. A strengthened principles-based expectation could therefore be more suitable.”
  • “We believe there is merit in lenders applying an explicit, qualifying amortization limit and we will continue to evaluate this proposal.”
  • See the full review of initial consultation feedback here: https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/adv-prv/Pages/b20-commentaires-consultation-comments.aspx
  • GoC yields sit 4-7.5bp cheaper on the day as they continue to track Treasuries at the front end and outperform further out.
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