1. What is happening?
FSRA is developing a new interpretation and approach guidance for residential mortgage lending, which will update existing credit union standards and ensure that they are transparent, efficient and principles-based. We are currently seeking feedback through a public consultation.
2. What is the purpose of these documents?
The interpretation guidance document establishes principles for residential mortgage lending and a proportional approach for applying principles and expectations. The “approach” document defines the standards and practices that it will use in applying principles-based guidance. It sets out how FSRA supervises against the interpretation guidance.
3. Who is being asked to review this material?
Draft interpretation and approach guidance were circulated for a directed pre-consultation sector review and received positive feedback from nine credit unions and the Canadian Credit Union Association.
4. How important are residential mortgages to credit unions?
Residential mortgages represent a significant portion of the overall lending business of Ontario credit unions. As at March 31, 2019 (based upon unaudited financial information available to FSRA), residential mortgages at credit unions totaled $38.9 billion (62.3 % of credit unions’ total loans and 54.0 % of total assets). Insured mortgages were $11.8 billion (30.5%). Uninsured mortgages were $27.1 billion (69.5%). Write-offs for 2019 were negligible at $2.9 million of aggregate mortgages.
5. How strong are underwriting practices?
Credit unions in Ontario adhere to strong mortgage underwriting practices. Eighty five percent of borrowers served by credit unions have strong credit scores (of 650 or higher).
The credit union sector’s overall mortgage portfolio has an adequate risk level when compared to that of the Canadian mortgage market. In aggregate, 30% of all residential mortgages issued by Ontario credit unions are insured and 60% of uninsured loans issued by the sector have loan-to-value ratios of less than 70%. Credit unions have had very low loan loss experiences over the past few years.
6. Why is FSRA doing this consultation now?
Ontario credit unions are well-regulated institutions that are supervised by FSRA and adhere to requirements set out in the Credit Unions and Caisses Populaires Act, 1994 and applicable FSRA Guidance. Credit unions maintain prudent lending policies that encompass sound credit and risk management practices and conform to industry standards. With increased scrutiny on residential mortgage lending in recent years and the tightening of standards for federally-regulated financial institutions, FSRA sees an opportunity to modernize existing guidance to incorporate principles that reflect best practices for residential mortgage lending. This is not going to be a “one-size-fits-all” approach. Credit unions are diverse in size, complexity and risk appetite. Principles-based guidance will enable credit unions to ensure that they are achieving the intended objectives in a manner that is appropriate for each institution. This will help credit unions as they continue to offer competitive mortgage products to current and potential members, which are well suited to their individual circumstances.
7. Where do I go for more information?