* OSFI calls for "sound mortgage underwriting procedures"
* Says enhancing supervisory oversight of mortgage lending
* Urges "good diligence" by banks on foreign buyers
* Finance ministry welcomes move
(Adds interview with banking regulator)
By Matt Scuffham
TORONTO, July 7 (Reuters) - Canada's banking regulator is
tightening oversight of mortgage lending, citing concerns about
record household debt and a sharp jump in house prices, and says
income verification for borrowers outside Canada has become a
particular challenge.
In the latest sign of the concerns of Canadian authorities
about soaring home prices in markets like Vancouver and Toronto,
the Office of the Superintendent of Financial Institutions
(OSFI) said on Thursday that price gains, debt levels and
persistently low interest rates had all helped increase threats
to the stability of financial institutions.
Foreign buying has been cited as factor driving prices in
the two largest markets, Toronto and Vancouver. OSFI's concerns
include the quality of credit checks on borrowers with income
from abroad, Superintendent Jeremy Rudin said in an interview.
Income verification checks should not be viewed by banks as
being less important in a period of rising prices, he warned.
"Borrowers who rely on income from sources outside of Canada
pose a particular challenge in this regard," he said.
"We're reinforcing our expectation that lenders will do good
diligence and that, to the extent that there is uncertainty
about the income, that this be treated cautiously and that
compensating controls be in place before the loan is granted."
Canada's housing market boomed after the 2007-09 financial
crisis, fueled by record low borrowing costs. Last month, the
Bank of Canada warned that the pace of home price increases in
Toronto and Vancouver is unlikely to continue with growing
potential for a downturn.
"With rapid price increases in some areas and current
exceptionally low interest rates, the risks are getting larger,"
Rudin said in a statement. "OSFI wants to see sound mortgage
underwriting procedures in place that adapt to the ever-changing
circumstances in this area."
OSFI said that, in light of the current environment, it had
enhanced its supervisory oversight of mortgage lending and
identified a number of issues that required close attention from
lenders.
It said it would scrutinize lenders' practices for income
verification, higher risk loans, debt service ratios,
loan-to-value ratios and risk appetite.
Canadian Finance Minister Bill Morneau announced in June
that the Liberal government would set up a working group of
federal, provincial and municipal officials to recommend policy
changes aimed at preventing a housing bubble.
The finance ministry on Thursday welcomed OSFI's move and
said it was consistent with Morneau's actions to address risks
in the Canadian housing market.