OTTAWA/MONTREAL (Reuters) - Credit unions in Quebec could soon face the same stiffer mortgage rules as Canada’s big banks, its securities watchdog said, but the country’s other provinces with frothy property markets are split on whether to require tougher stress tests for borrowers who look to smaller lenders to buy a house.
The schism opens the door for credit unions to take a bigger share of the country’s mortgage market, particularly in the hottest housing markets, Toronto and Vancouver, where homebuyers often no longer qualify for loans from the big banks.
Tougher new rules on mortgage lending were imposed on federally regulated lenders on Jan. 1 to safeguard lenders and borrowers from risky loans amid fears of a housing bubble. But the so called B-20 stress tests are not, so far, required at the nation’s provincially regulated credit unions, which have become the go-to source for some brokers.
About 17 percent of outstanding uninsured mortgages in Canada is held by credit unions.
Sylvain Theberge, a spokesman for Quebec’s securities watchdog, the Autorite des marches financiers, said it has held consultations to harmonize guidelines for mortgage lending by Quebec credit unions with OSFI’s B20 by March. A final decision has not yet been taken by the province.
“The government will be ready for the deadline of March 2018,” said Audrey Cloutier, a spokeswoman for Finance Minister Carlos Leitao.
Montreal-based Mouvement Desjardins, the largest cooperative financial group in Canada, has already been applying OSFI’s new mortgage rules “because we believe it is an effective way to protect consumers against interest rates variations,” company spokeswoman Valerie Lamarre said by email. “It is still too early to tell if it will have any impact on our mortgage business.”
By contrast, the regulator in British Columbia said in an email the province is not considering changes to its underwriting guidelines, and Ontario is in a wait-and-see mode, giving credit unions there more room to maneuver with its borrowing terms.
Paul Taylor, president of Mortgage Professionals Canada, said he expects Quebec to regulate in line with federal guidelines to demonstrate its influential credit unions are as prudent as the big banks, while B.C. will balk at the new rules and the other provinces will wait and see.
The B-20 rules imposed by the Office of the Superintendent of Financial Institutions require lenders “stress test” borrowers applying for uninsured mortgages to ensure they can withstand higher interest rates, even though they have a downpayment of at least 20 percent.
Up to 10 percent such buyers could be disqualified by the new rules, the Bank of Canada estimated in November, pushing C$15 billion in mortgage demand to less regulated lenders.
“Credit unions are now my first line of attack,” said Daniel Johanis, a Toronto mortgage broker, estimating that more than 50 percent of his business is now going to credit unions, compared to “the odd deal” previously.
Credit unions are already raising their rates amid the increased demand, boosting profit and reducing risk.
“The next month to three months is quite a good opportunity to for credit unions to pick up a bit of market share,” said Taylor.
Still, capacity at the credit unions and financial cooperatives is limited, he said, with the biggest players - such as Meridian in Ontario and Vancity in British Columbia - at an advantage because they have more deposits to help finance mortgage lending.
Editing by Bernadette Baum and Cynthia Osterman