OTTAWA – The federal banking regulator says it’s stepping up its scrutiny of mortgage lending.
The Office of the Superintendent of Financial Institutions Canada has sent a letter to all federally regulated financial institutions reminding them of its expectation for prudent underwriting of residential mortgages.
The regulator says it expects lenders to verify that their mortgage operations are well supported by prudent underwriting, as well as sound risk management and internal controls.
OSFI says low interest rates, record levels of household debt and the sharp rise in house prices in some cities such as Vancouver and Toronto could generate significant loan losses for lenders if the economy deteriorates.
The regulator says it has identified several areas that it will be watching closely including the verification of a borrower’s income.
It is also looking at non-conforming loans, debt service ratios, property appraisals and risk management.