OSFI issues new guidelines for mortgage insurers

Given the prominent role of mortgage insurance in the Canadian market, OSFI has developed a separate guideline for mortgage insurers, which focuses on mortgage insurers’ insurance underwriting governance, internal controls, and risk management. OSFI says that the guidance is based on findings from its own internal reviews and international work undertaken by the Financial Stability Board (FSB) and the Joint Forum.

“It provides clarity about best practices in respect of residential mortgage insurance underwriting, which contribute to a stable financial system,” it notes. The guidance, once it is finalized, will apply to all federally-regulated mortgage insurers that fall under federal insurance legislation and that provide mortgage insurance for residential mortgage loans in Canada, and/or reinsurance for insured loans.

OSFI says that the main objectives of the guideline are to provide firms with clarity about its expectations for prudent mortgage insurance underwriting practices and procedures; promote sound industry practices that contribute to the safety and soundness of federally regulated mortgage insurers; adopt international principles and recommendations for mortgage insurance underwriting; and, to develop guidance that complements the federal government’s mortgage insurance guarantee framework.

The new guidance is designed to complement earlier guidance that was developed for residential mortgage underwriting in the wake of the financial crisis. With the guidelines for both mortgage underwriting itself, and now mortgage insurance, “OSFI is making clear its expectations for both lenders and insurers operating in the housing market. The industry’s adherence to these principles will contribute to the continued stability of the market,” said superintendent, Julie Dickson.

The draft guidance is open for consultation until May 23. Once comments have been considered, a final guideline will be issued and an implementation date set.