Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.
Issue link: http://digital.canadawide.com/i/254794
MortgageBroker mbabc.ca winter 2014 | 35 governmentguidelines OSFI was created to contribute to public confidence in the Canadian financial system. e office of the Superintendent of Financial Institutions ( OSFI) was established on July 2, 1987, by the Office of the Superintendent of Financial Institutions Act (OSFI Act). is legislation created a single regulatory agency responsible for the regulation and supervision of all federally chartered, licensed, or registered banks, insurance companies, trust and loan companies, cooperative credit associations, and fraternal benefit societies. Regulation and supervision OSFI's activities can be divided into two broad functions: regulation and supervision. Regulation Regulation involves providing input into developing and interpreting legislation and regulations, issuing guidelines and approving requests from federally regulated institutions, as required under financial institution legislation. Supervision Supervision involves assessing the safety and soundness of federally regulated financial institutions and pension plans, and using supervisory powers to intervene in a timely manner to protect the rights and interests of depositors, policyholders, and pension plan members. OSFI supervises institutions in accordance with its Supervisory Framework, introduced in 1999, and supplemented by its Supervisory Framework Rating Assessment Criteria. Guide to intervention for federal financial institutions OSFI and the Canada Deposit Insurance Corporation (CDIC) have jointly developed the Guide to Intervention for Federal Financial Institutions. e guide provides a framework for responding effectively to circumstances that could lead to the instability of a financial institution. Formalizing a process for early intervention if potential problems are identified increases the likelihood of preventing the institution's failure. e Guide clearly describes the supervisory assessment and intervention process. It outlines the actions or options available to OSFI and the CDIC, individually and jointly, to address the institution's circumstances that are the source of concern. It also defines a graduated and progressive set of responses depending on the institution's situation and the perceived degree of weakness. Guidelines OSFI publishes guidelines that are essentially best, or prudent, practices that it expects financial institutions to follow. ese guidelines are used to set standards to govern industry activities and behaviour and include solvency standards (capital adequacy), prudential standards (large exposure limits, portfolio mix), and accounting standards (e.g., nonaccrual loans and transfer of assets). Guideline B-20 More specific to mortgages, OSFI released the OSFI's Role in the Financial Landscape Since its creation OSFI has seen significant changes in the regulatory environment OFSI Guideline outlines five main principles for prudent mortgage underwriting and/or acquisition. Federally regulated financial institutions ( FRFIs) engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada should: • Have a comprehensive residential mortgage underwriting policy; • Perform reasonable due diligence to assess the borrower's identity, background and demonstrated willingness to service his or her debt obligations on a timely basis; • Adequately assess the borrower's capacity to service his or her debt obligations on a timely basis; • Have sound collateral management and appraisal processes; • Have effective credit and counterparty risk management including, where appropriate, mortgage insurance. Residential Mortgage Underwriting Practices and Procedures p34-37_OSFI.indd 35 14-01-27 11:45 AM