OSFI urges lenders to be vigilant amid “heightened risk” in the mortgage market

General Darrel Painter 14 Mar

OSFI urges lenders to be vigilant amid “heightened risk” in the mortgage market

 

In response to increased risks in the mortgage market, Canada’s banking regulator has issued a reminder to lenders about their risk management responsibilities.

The Office of the Superintendent of Financial Institutions (OSFI) this week released a regulatory notice reminding federally regulated lenders of their obligations pertaining to mortgage risk management and underwriting guidelines.

The measures range from being proactive with vulnerable accounts, including “early and proactive engagement with vulnerable borrowers,” to credit loss provisioning and “sound” mortgage underwriting.

“None of the measures outlined in our latest regulatory notice are new,” a spokesperson from OSFI told CMT.

OSFI says the notice is meant to complement its Guideline B-20, while specifically drawing attention to and reinforcing the regulator’s expectations for lenders in the current economic and interest rate environment.

“The notice responds to the heightened risk environment related to existing mortgage accounts and lender portfolios,” OSFI said. “These risks include potential payment shocks and renewal and refinancing risks, particularly for borrowers with higher-risk mortgage products like variable-rate mortgages with fixed payments.”

OSFI confirmed that the notice isn’t in response to a particular lender or their mortgage risk management practices, but instead “reinforces to all lenders the importance of sound mortgage risk management practices through the full lifecycle of the loan.”

As a principles-based regulator, OSFI said it communicates its expectations and tries to avoid being “prescriptive” as much as possible. “…we assess risks to ensure alignment with our expectations and take corrective action when necessary.”

SOURCE: CMT

In wake of fraud allegations, RBC says it’s “very comfortable” with due diligence done on HSBC Canada’s mortgage portfoli

General Darrel Painter 5 Mar

Prithipal Dadiala

In wake of fraud allegations, RBC says it’s “very comfortable” with due diligence done on HSBC Canada’s mortgage portfolio

RBC’s executive team today expressed confidence in its due diligence of HSBC Canada’s mortgage portfolio during the $13.5-billion acquisition.

The question arose on today’s first-quarter earnings call in the wake of whistleblower allegations of a mortgage fraud scheme at HSBC Canada’s Greater Toronto operations prior to RBC’s acquisition of the bank.

The allegations were first reported by journalist Sam Cooper at The Bureau and have caught the attention of Simcoe North MP Adam Chambers, who is calling for an investigation of the allegations.

“[Going back] to the diligence we did at the inception of transaction, credit was a huge part of our focus there,” said Chief Risk Officer Graeme Hepworth.

“We brought a lot of people into the room on that from the risk management side and the business side to go very deep on their portfolios, [and] really understand their mortgage portfolio, their commercial portfolios,” he continued. “We did that from both an aggregate portfolio view as well as right down to reviewing and understanding the underwriting they did on sample portfolios there.”

Through that process, he said RBC’s team was “very comfortable” with the credit quality of the portfolio.

“If anything, it skews a little bit better than some of our portfolios. The nature of their retail client base is a fairly high net worth one and so that tends to skew well,” he added. “We felt really good about the diligence we did at the time. Obviously, we’ll get the full details…But I don’t think at this point in time we’ve seen anything that was new there that would cause us concern.”

RBC’s acquisition of HSBC’s Canadian unit cleared its final hurdle in December after receiving approval from Chrystia Freeland, Deputy Prime Minister and Minister of Finance. The deal is expected to close by March 28.