Exclusive: Canada's financial watchdog warns lenders against bundled loans

Thu Feb 23, 2017 4:36pm EST
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By Matt Scuffham

TORONTO (Reuters) - Canada's financial watchdog has warned regulated mortgage providers against teaming up with unregulated rivals to sidestep rules designed to clamp down on risky lending, a top regulator told Reuters.

Carolyn Rogers, assistant superintendent at the Office of the Superintendent of Financial Institutions, said in an interview that the regulator was taking action to stamp out so-called "bundled" loans, which pair a primary mortgage with a second loan from unregulated groups called Mortgage Investment Corporations (MICs).

Reuters reported last month that the practice can circumvent rules limiting how much mortgage providers can lend against a property, and the arrangements have proliferated as Canadian regulators have tightened lending standards to shield borrowers in case a decade-long housing boom goes bust.

"They are rules. They are not guidelines, and they are not principles. We absolutely expect regulated entities to be adhering to them," Rogers said late on Wednesday.

"Anytime a regulated entity is or appears to be designing a product or an approach that is, by its design, circumventing the rules we would take issue with that," she added.

Home Capital Group (HCG.TO: Quote) and Equitable Group (EQB.TO: Quote) are two listed mortgage providers that have told Reuters they participate in bundled lending. Home Capital declined to comment and Equitable could not be reached for comment.

Rogers said she would not comment about specific institutions or about specific actions being taken by the regulator.

Under federal rules, regulated lenders in Canada are not allowed to lend more than 65 percent of the value of a home to borrowers with bad or nonexistent credit records.   Continued...