The new mortgage stress tests have potential homeowners looking for alternative lenders
Thanks to the new mortgage stress test rules that were put in place by OSFI, and the continuous rise of the Bank of Canada’s benchmark interest rate, many hopefully borrowers have been forced to seek out alternative lenders. The number of those rejected by banks has risen by 20%, and as a result, those that fall under the “alternative lender” category have seen an increase in business.
"A lot of these people should be bankable," said Hali Noble, its senior vice president of residential mortgage investments and broker relations. "But they're not."
Private lenders, mortgage investments corporations, credit unions, and like financial institutions are not bound by the same parameters as traditional banks are. This makes them a prime option for those not deemed worthy in the eyes of their bank.
In order to get a loan from a federally regulated lender, homebuyers must be able to prove that they could service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus 2% point or the five-year benchmark rate published by the Bank of Canada. An existing stress test already requires those with insured mortgages to qualify at the Bank of Canada benchmark five-year mortgage rule.
Superintendent Jeremy Rudin has said OSFI is aware the stricter rules could have unintended consequences, such as sending borrowers towards more risky lenders that are out of the regulator's purview.
"We can't control what we can't control," he said in October when the new rules were made public. “Our mandate is focused on the safety and soundness of the federally regulated institutions... It isn't something that we favor but it isn't something that we have an authority to prevent."