OSFI guidance on First-Time Home Buyer Incentive mortgages

OSFI has issued an advisory on the total requirements for First-Time Home Buyer Incentive insured mortgages.

The regulator says that the Mortgage Insurer Capital Adequacy Test (MICAT) is not currently designed to capture the mortgage insurance risk associated with FTHBI mortgages compared to non-FTHBI mortgages with the same risk drivers, e.g., loan-to-value, outstanding balance. 

The program to help eligible first-time homebuyers went live this week and borrowers will have a first position, high-ratio mortgage and will be required to purchase mortgage insurance.

OSFI’s assessment of the potential risks includes an expectation that FTHBI mortgages will have probabilities of default that are different compared to non-FTHBI mortgages, all else being equal, because FTHBI mortgages will have different loan-to-value ratios.

It also suggests that total requirements for a FTHBI mortgage should be in between the amounts required for a mortgage with a loan-to-value reflecting only the borrower's down payment and a mortgage with a loan-to-value reflecting the combined borrower's down payment and the shared equity component.

OSFI recommends “the development of a sound, consistent and tailored solution that can be implemented before any FTHBI mortgages are funded” to give mortgage insurers time to update their systems and plan.

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