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REFILE-UPDATE 3-Canadian Regulators May Review Terms Of Mortgage Stress Test

REFILE-UPDATE 3-Canadian regulators may review terms of mortgage stress test

By Matt Scuffham for Reuters

TORONTO, Feb 5 (Reuters) – Canada will consider changing the terms of a stress test designed to cut out risky mortgage lending if market conditions change, one of the country’s top banking regulators said on Tuesday.

The Office of the Superintendent of Financial Institutions, Canada’s main financial regulator, introduced rules last January requiring banks to test borrowers’ ability to repay mortgages at an interest rate 200 basis points above their contracted rate.

Reuters reported on Monday that the regulator was coming under increasing pressure from banks and mortgage industry lobbyists to relax the requirements of the test.

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OSFI’s assistant superintendent, Carolyn Rogers, said on Tuesday the regulator understood the need to monitor the effects of the stress test and of interest rate rises. The Bank of Canada has hiked rates three times since January 2018.

“We’re always watching,” Rogers said in an interview. “If we see a material change in the risk environment, we’ll respond to that with changes to our policy.”

The stress test was part of a range of measures, known as B-20, designed to ensure banks maintained vigilant mortgage underwriting standards at a time of red-hot housing markets in Toronto and Vancouver.

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