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My Mortgage Blog

Not sure if you have all heard, but the Federal Government has asked the Bank of Canada to review the stress test. Not sure to when this review may take place, but at least they are recognizing some of the negative effects it has created.

Review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.

What will actually come from this review and the resulting tweaks (if any) to the mortgage stress test is unclear.


BACKGROUNDER: There are two mortgage stress tests, one on insured mortgages (less than 20% down payment) and another on uninsured mortgages. The latter, implemented on January 1, 2018, and overseen by the banking regulator OSFI—and arguably the more contentious of the two tests—requires buyers to be qualified at the greater of their contract rate plus 200 bps or the Bank of Canada’s benchmark rate, which is currently 5.19%. In an interview with BNN Bloomberg, Morneau noted that his mandate includes the insured part of the market, so it’s likely any changes that come from this review would focus on the insured mortgage stress test. However, the Office of the Superintendent of Financial Institutions (OSFI) could always follow the government’s lead and adopt its own changes for the uninsured stress test.

Up until now, the Liberal government and the head of the Canada Mortgage and Housing Corporation (CMHC)—responsible for implementing the stress tests—have been opposed to any tweaks.

“Given the context of a minority government, we should not be shocked [the Liberals] are giving it some consideration,” Robert Hogue, senior economist at Royal Bank of Canada, wrote in a research note.

And given its minority government situation, any tweaks will require the support of other parties in Parliament. During the election, the Conservatives had promised to “fix” the stress test to help first-time buyers, so it’s plausible any tweaks proposed by the Liberals will be palatable to the Conservatives.

View  more information on this mortgage stress test review by clicking this link.