Canada watchdog wants more mortgage transparency

Mon Mar 19, 2012 5:37pm EDT
 
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By Louise Egan

OTTAWA (Reuters) - Canada's banking regulator wants lenders to be more transparent about their mortgage businesses as it seeks to minimize the risk to the economy from record-high levels of household debt.

Draft guidelines from the regulator released on Monday called for increased disclosure by banks of their exposure to certain mortgage products and markets, and enhanced risk-management practices. It also demanded that banks treat home equity lines of credit (HELOCs) the same way as mortgages.

The Office of the Superintendent of Financial Institutions has been reviewing bank's residential mortgage portfolios for over a year and the draft guidelines reflect some of its findings.

"Although financial-institution mortgage portfolios in Canada continue to perform well, a number of vulnerabilities in the financial system exist, including high household indebtedness," said Mark Zelmer, assistant superintendent at OSFI's regulation sector.

"OSFI is acting in an effort to prevent these vulnerabilities from evolving into problems for the financial system," he said.

PROPERTY BUBBLE FEARED

Canada's housing sector avoided the subprime mortgage bust that drove the United States into recession. But a post-crisis property boom fueled by ultra-low lending rates has some economists and policymakers worried that a bubble is forming.

The guidelines released on Monday build on "Principles for Sound Residential Mortgage Underwriting" released last October by the Financial Stability Board, the global body set up by the Group of 20 wealthy and developing nations to monitor worldwide financial regulation.   Continued...

 
Julie Dickson, head of the Office of the Superintendent of Financial Institutions (OSFI), waits to testify before the Senate banking committee in Ottawa November 23, 2011. REUTERS/Chris Wattie