Banks will have to hold more capital against certain mortgages due to negative amortization amid rising rates
Under the proposed changes, negative amortization mortgages that breach the selected loan-to-value calculation “will be treated as exposures that do not meet OSFI’s expectations set out in Guideline B-20” that regulates mortgage underwriting practices and procedures, OSFI said in a letter outlining its proposed changes, which are open to industry feedback through September 1, 2023.
In April 2023, the housing market topped OSFI’s annual list of the biggest risks to Canada’s financial system, with the variable-rate fixed-payment mortgage product a particular concern because the monthly payment doesn’t increase even as rates rise.
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