House Standing Committee on Finance (February 13, 2024)
ANNEX B: Joint OSFI / FCAC Letter to FINA – October 25, 2023
Addressed to Mr. Peter Fonseca, M.P.
Chair, House of Commons Standing Committee on Finance
Dear Mr. Fonesca,
During a recent appearance before the House of Commons Standing Committee on Finance on September 28, 2023, the Department of Finance was asked a question that obliged the Office of the Superintendent of Financial Institutions (OSFI) to provide further information to the Committee.
Specifically:
Can the Department of Finance provide an explanation of what is going on between OSFI and FCAC? OSFI's September 13 bulletin says that you have to go through the B-20 rules if you want to refinance. FCAC says you can extend amortization. Those are complete opposite purposes. I'd just like to understand what's happening.
OSFI and the Financial Consumer Agency of Canada (FCAC) are aligned in our approach to extended amortization as it relates to the soundness and stability of Canada’s banking system and to the financial security and resilience of Canadians.
The issue being referred to relates to temporary versus permanent hardship measures. FCAC’s Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances is focused on temporary mortgage relief measures to support consumers experiencing severe financial stress and sets out how it expects financial institutions to minimize the negative impacts of that stress.
With respect to relief measures that result in extended amortizations, FCAC’s Guideline states that the extension should be for the shortest period possible, taking into consideration the ability for the consumer at risk to restore the amortization to the original period. Such temporary measures aim to provide the consumer the time to fully assess their options and work towards the most appropriate long-term solution. Since the original contract remains unchanged, re-application of OSFI’s Guideline B-20 including the Minimum Qualifying Rate (MQR) would not be required.
A permanent change to the existing mortgage amortization period can also be made as part of a renegotiation of the contract terms to support debt consolidation, debt affordability, or other consumer-focused objectives. However, if the extension is beyond the original contractual amortization, then this is a refinance and constitutes a new mortgage contract. In this circumstance, OSFI’s Guideline B-20 underwriting expectations would apply, including application of the MQR. FCAC’s Guideline on Appropriate Products and Services would also apply.
This Guideline ensures a careful evaluation of the consumer’s financial circumstances, especially in cases involving amortization extensions that increase the total cost of servicing a mortgage.
For greater clarity, OSFI does not hold the view that all amortization extensions require re-application of the MQR. Applying the MQR will occur for those amortization extensions that occur due to permanent contract changes that, thereby, require a refinance.
As such, we believe that FCAC’s and OSFI’s respective expectations on financial institutions work in tandem to both protect consumers and maintain a stable and efficient financial system.
Sincerely,
Tracie Noftle
Executive Director
Communications, Engagement and Stakeholder Affairs Office of the Superintendent of Financial Institutions