Housing collapse ? Banks no sweat. It’s you

Canada’s banking regulator delivered a warning Monday about the state of the housing sector, reminding industry players to remain vigilant to the dangers of a correction in the market and what it would mean for borrowers.

“Consumers must be considered here because, while banks may be able to withstand shocks, consumers may not,” said Julie Dickson, the head of the Office of the Superintendent of Financial Institutions. “Banks have to set aside reserves for unexpected losses and are typically far better situated to deal with shocks than consumers — who may be highly indebted and therefore particularly vulnerable to significant increases in interest rates or unemployment.”

Ms. Dickson also served notice that OSFI is preparing a set of guidelines specifically for the mortgage insurance industry.

In June of 2012, OSFI unveiled so-called B-20, a framework of regulations about how the banks should handle their mortgage business including popular home equity lines of credit, or HELOC’s.

Guideline B-21 for mortgage insurers will take a similar approach, laying down industry best practices. Ms. Dickson said a draft version will be made public at the end of March.

Mortgage insurance is dominated by the Canada Mortgage and Housing Corp., a Crown corporation which came under OSFI’s direct responsibility last year. Roughly 60% of the approximately $1.2-trillion of Canadian mortgages outstanding are ultimately backstopped by the federal government.

After more than a decade of steadily rising real estate prices across most of the country, many observers worry that consumers are now dangerously over-leveraged at a time of enormous uncertainty about the global economy.

Since the financial crisis, the federal government has intervened four times to cool things off, mostly by tightening rules around mortgage lending, but prices continue to rise, raising expectations of further government action. But Ms. Dickson did not announce any rule changes on Monday.

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OSFI’s Job Isn’t to Say Whether a Housing Bubble Exists: Dickson

Canadian banking regulator Julie Dickson said she keeps a close eye on the housing market but stopped short of saying whether a housing bubble exists here.

The head of Canada’s Office of the Superintendent of Financial Institutions made that clear in prepared remarks Monday at a gathering of Canadian mortgage brokers in Toronto.

But Ms. Dickson also said policy makers are obliged to keep “very” close eye on the state of Canadian housing sector, and warned about putting too much weight on indicators such as credit scores and delinquency rates which, at this time, suggest there’s nothing to worry about. Those indicators can deteriorate rapidly should conditions go awry suddenly, she said.

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