{"id":8674,"date":"2021-04-08T22:55:32","date_gmt":"2021-04-08T22:55:32","guid":{"rendered":"https:\/\/www.pantheregroup.com\/2021\/04\/08\/tightening-mortgage-stress-test-could-have-fast-impact-on-housing-market-rbc-ceo-says\/"},"modified":"2021-04-08T22:55:32","modified_gmt":"2021-04-08T22:55:32","slug":"tightening-mortgage-stress-test-could-have-fast-impact-on-housing-market-rbc-ceo-says","status":"publish","type":"post","link":"https:\/\/www.pantheregroup.com\/2021\/04\/08\/tightening-mortgage-stress-test-could-have-fast-impact-on-housing-market-rbc-ceo-says\/","title":{"rendered":"Tightening mortgage stress test could have fast impact on housing market, RBC CEO says"},"content":{"rendered":"<p> \n<\/p>\n<div id=\"\">\n<header aria-label=\"Beginning of Article\" class=\"article-header\">\n<nav aria-label=\"Breadcrumb\" class=\"breadcrumbs\">\n<h2 class=\"visually-hidden\">Breadcrumb Trail Links<\/h2>\n<ol class=\"breadcrumbs__items list-unstyled\">\n<li class=\"breadcrumbs__item\"> Real Estate <\/li>\n<li class=\"breadcrumbs__item\"> Economy <\/li>\n<\/ol>\n<\/nav>\n<p class=\"article-subtitle\"> Dave McKay told reporters that he did think some action will be necessary to cool demand in the market in the short term, but that it should be &#8216;modest&#8217; <\/p>\n<div class=\"article-meta\">\n<div class=\"published-by\">\n<p>Author of the article:<\/p>\n<p> <span class=\"published-by__author\">Geoff Zochodne<\/span> <\/div>\n<div class=\"published-date\">\n<p>Publishing date:<\/p>\n<p> <span class=\"published-date__since\">Apr 08, 2021<\/span> \u00a0\u2022\u00a0 <span class=\"updated-date__since\">31\u00a0minutes ago<\/span> \u00a0\u2022\u00a0 <span class=\"published-date__word-count\">3 minute read<\/span> \u00a0\u2022\u00a0 <span>  <span class=\"comment-bubble\"> <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" height=\"16px\" viewbox=\"0 0 24 24\" width=\"16px\"><path d=\"M4,0 C2.93914,0 1.921718,0.421428 1.171572,1.171572 C0.421428,1.921718 0,2.93914 0,4 L0,24 L3.846,20.158 L4,20.16 L20,20.16 C21.0608,20.16 22.0782,19.73858 22.8284,18.98842 C23.5786,18.23828 24,17.22086 24,16.16 L24,4 C24,2.93914 23.5786,1.921718 22.8284,1.171572 C22.0782,0.421428 21.0608,0 20,0 L4,0 Z M2,4 C2,3.46956 2.21072,2.96086 2.58578,2.58578 C2.96086,2.21072 3.46956,2 4,2 L20,2 C20.5304,2 21.0392,2.21072 21.4142,2.58578 C21.7892,2.96086 22,3.46956 22,4 L22,16.16 C22,16.69044 21.7892,17.19914 21.4142,17.57422 C21.0392,17.94928 20.5304,18.16 20,18.16 L4,18.16 L3.048,18.126 L2,19.174 L2,4 Z\"\/><\/svg><\/span> Join the conversation  <\/span> <\/div><\/div>\n<figure class=\"featured-image\"><picture class=\"featured-image__ratio featured-image-category__real-estate\"><source media=\"(min-width: 1200px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=564&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=1128&amp;type=webp 2x\" type=\"image\/webp\"\/><source media=\"(min-width: 1200px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=564&amp;type=jpg,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=1128&amp;type=jpg 2x\" type=\"image\/jpeg\"\/><source media=\"(min-width: 768px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=472&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=944&amp;type=webp 2x\" type=\"image\/webp\"\/><source media=\"(min-width: 768px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=472&amp;type=jpg,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=944&amp;type=jpg 2x\" type=\"image\/jpeg\"\/><source media=\"(max-width: 767px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=288&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/Dave-McKay-12.png?quality=90&amp;strip=all&amp;w=576&amp;type=webp 2x\" type=\"image\/webp\"\/><\/picture><figcaption class=\"featured-image__caption image-caption\"><span class=\"caption\">RBC president and CEO Dave McKay: &#8220;We can implement this quickly, and make an immediate impact with it.&#8221;<\/span> <span class=\"credit\">Photo by Peter J. Thompson\/Financial Post\/File<\/span> <\/figcaption><\/figure>\n<\/header>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>The chief executive of Royal Bank of Canada on Thursday said that a proposed tweak to a mortgage stress test could have a swift effect on the housing market, which he also noted is currently beset by limited supply and a surge in demand.<\/p>\n<p>RBC president and CEO Dave McKay said during a conference call with reporters that he did think some action will be necessary to cool demand in the market in the short term, but that it should be \u201cmodest\u201d and that it could be a change to existing policy.<\/p>\n<p>One possibility floated by McKay was using the Office of the Superintendent of Financial Institutions\u2019 so-called B-20 guideline, which includes a minimum qualifying rate for mortgages not insured against the borrower defaulting. Making that stress test tougher could sideline some would-be buyers, according to McKay.<\/p>\n<p>\u201cThere are mechanisms around our existing structure that we could tweak to help manage, potentially, a short to medium term issue,\u201d he said. \u201cAt the same time, we have to solve for the medium to longer term on the supply side.\u201d<\/p>\n<\/section>\n<div class=\"ad__section-border article-content__ad-group\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-1\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>McKay\u2019s comments came just before OSFI announced a proposed change to B-20\u2019s minimum qualifying rate for uninsured mortgages.<\/p>\n<section aria-labelledby=\"moreTopicLabel3546932709386141305680265207674281\" class=\"more-topic\" data-carousel-icon-button=\"\" data-carousel-type=\"list\"><button aria-hidden=\"true\" class=\"more-topic__button-prev\" data-carousel-prev=\"\" tabindex=\"-1\" title=\"previous\" type=\"button\"\/><\/p>\n<ol class=\"more-topic__items list-unstyled\" data-carousel-slide-list=\"\" tabindex=\"0\">\n<li class=\"more-topic__item\" data-carousel-item=\"\"><picture class=\"more-topic__item-image\"><img decoding=\"async\" alt=\"None\" class=\"lazyload\" src=\"https:\/\/smartcdn.prod.postmedia.digital\/nationalpost\/wp-content\/uploads\/2021\/04\/house0408.jpg?h=96&amp;strip=all&amp;quality=80\" height=\"96\" loading=\"lazy\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/nationalpost\/wp-content\/uploads\/2021\/04\/house0408.jpg?h=96&amp;strip=all&amp;quality=80,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/nationalpost\/wp-content\/uploads\/2021\/04\/house0408.jpg?h=192&amp;strip=all&amp;quality=80 2x,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/nationalpost\/wp-content\/uploads\/2021\/04\/house0408.jpg?h=288&amp;strip=all&amp;quality=80 3x\" width=\"96\"\/><\/picture>\n<h3 class=\"more-topic__item-text\"><span class=\"more-topic__item-text-clamp\"> Bank watchdog proposes stiffer mortgage rules amid hot housing market <\/span><\/h3>\n<\/li>\n<li class=\"more-topic__item\" data-carousel-item=\"\"><picture class=\"more-topic__item-image\"><img decoding=\"async\" alt=\"Millennials want space, both outdoors and indoors, to accommodate their new work-from-home lifestyle.\" class=\"lazyload\" src=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/housing-1.png?h=96&amp;strip=all&amp;quality=80\" height=\"96\" loading=\"lazy\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/housing-1.png?h=96&amp;strip=all&amp;quality=80,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/housing-1.png?h=192&amp;strip=all&amp;quality=80 2x,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/04\/housing-1.png?h=288&amp;strip=all&amp;quality=80 3x\" width=\"96\"\/><\/picture>\n<h3 class=\"more-topic__item-text\"><span class=\"more-topic__item-text-clamp\"> Millennials are taking advantage of low-rate window to jump into housing market, poll suggests <\/span><\/h3>\n<\/li>\n<\/ol>\n<p><button aria-hidden=\"true\" class=\"more-topic__button-next\" data-carousel-next=\"\" tabindex=\"-1\" title=\"next\" type=\"button\"\/><\/section>\n<p>OSFI\u2019s proposal is that borrowers would have to qualify for their loan at whichever is higher: the rate on their contract plus two percentage points, or 5.25 per cent, which would become the new \u201cfloor\u201d for the test. The regulator is also proposing to review the setting of the stress test at least once a year to ensure it is appropriate for the level of risk in the market.<\/p>\n<p>\u201cThe current Canadian housing market conditions have the potential to put lenders at increased financial risk,\u201d the regulator said in a press release. \u201cOSFI is taking proactive action at this time so that banks will continue to be resilient.\u201d<\/p>\n<p>OSFI\u2019s proposed tweak could make it harder for some borrowers to qualify for a loan. The current benchmark rate for the stress test is approximately 4.8 per cent, so the new one would be about 45 basis points higher, superintendent Jeremy Rudin told reporters.<\/p>\n<p>While McKay hadn\u2019t had a chance to look at OSFI\u2019s proposed changes (the official announcement came during his call with reporters), he did note that the stress test is something that\u2019s already built into the banks\u2019 loan adjudication process.<\/p>\n<p>\u201cSo we can implement this quickly, and make an immediate impact with it,\u201d he added.<\/p>\n<\/section>\n<div class=\"ad__section-border article-content__ad-group\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-2\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>The stress test aims to ensure borrowers can keep making their payments if there\u2019s a change in their circumstances, such as a rise in mortgage rates. OSFI said it will now collect input on its proposal before publishing its finalized adjustments by May 24, with those changes coming into effect on June 1.<\/p>\n<p>The regulator had proposed in early 2020 to swap out its current stress-test floor for one based on mortgage-insurance applications, plus an added buffer, matching a proposal from the finance minister for the federal government\u2019s insured-mortgage stress test. That effort was shelved in March 2020 because of the COVID-19 pandemic (OSFI also said Thursday it received feedback that the benchmark proposed in 2020 \u201cwould be highly volatile\u201d), although it potentially could have made it easier for some borrowers to qualify for a loan.<\/p>\n<p>Now, though, OSFI is proposing to tweak its stress test in the middle of an epic run for the housing market. Low interest rates, the desire for more space and a fear of missing out are all contributing to a surge in home prices.<\/p>\n<p>\u201cAt present, the overarching concern that we have is that the system needs to be ready for a return to pre-pandemic financial conditions, if indeed that takes place,\u201d Rudin told reporters.<\/p>\n<p data-async=\"\">In a\u00a0letter to the banks, OSFI noted that interest rates could rise when economic conditions permit and that, while Canadians may have built up their savings during the pandemic, there are still relatively high levels of household debt.<\/p>\n<p>\u201cThese factors, temporary or prolonged, contribute to FRFI (federally regulated financial institution) vulnerabilities, which could generate significant loan losses if economic conditions deteriorate,\u201d OSFI said.<\/p>\n<p data-async=\"\"><em>\u2022 Email: gzochodne@postmedia.com | Twitter: <a class=\"twitter-follow-button\" data-evt=\"click\" data-evt-typ=\"User Interaction Click\" data-evt-val=\"{\" control_fields=\"\" source=\"\" type=\"\" name=\"\" target=\"\" url=\"\" vertical=\"\" position=\"\" pixels=\"\" link=\"\" href=\"https:\/\/twitter.com\/geoffzochodne\" rel=\"noopener nofollow\">GeoffZochodne<\/a><\/em><\/p>\n<\/section>\n<section class=\"article-content__share-group article-delimiter\" data-evt=\"beforeunload\" data-evt-typ=\"scroll-depth\" data-evt-val=\"{\" control_fields=\"\" of=\"\" page=\"\" viewed=\"\" story=\"\">\n<h2 class=\"visually-hidden\">Share this article in your social network<\/h2>\n<\/section>\n<div class=\"article-content__ad-group\">\n<div class=\"ad__section-border ad__section-border--category visually-hidden\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-acceptable\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div><\/div>\n<div class=\"widget article-content__widget-group article-content__widget-group--slot1\">\n<section aria-labelledby=\"TheLogic5251959324051689779369123205245379\" class=\"feed-section feed-section--partner-story list-widget--partner-story the-logic\" data-async=\"\">\n<div class=\"widget-title widget-title--partner-story flex-align-center row row--no-padding--left row--no-padding--right\">\n<p> In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post. <\/p>\n<\/p><\/div>\n<\/section>\n<\/div>\n<div class=\"widget article-content__widget-group article-content__widget-group--slot2\">\n<section aria-labelledby=\"TopStoriesNewsletter8775607802081708228400730446187540\" class=\"newsletter-widget\" data-account-id=\"b9d3df2fccd108b5eff3c44f573b2cd6\" data-target-list=\"FP_HeadlineNews\" data-widget=\"newsletter\">\n<div class=\"newsletter-widget__body\">\n<h2 id=\"TopStoriesNewsletter8775607802081708228400730446187540\">Top Stories Newsletter<\/h2>\n<p class=\"newsletter-widget__text\">Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.<\/p>\n<div aria-hidden=\"false\" class=\"newsletter-widget__bottom js-form-main\">  <small> By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. 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