The new OSFI guidelines can be seen as harmless steps, yet there is much left to do.

Without the right incentives and oversight in place, taxpayer-backed housing finance will remain an accident waiting to happen, writes Finn Poschmann, Vice President, Research, at the C.D. Howe Institute, in The Financial Post.

OSFI last week released its long awaited draft guidelines, known as B-21, on prudent behaviour for federally regulated mortgage insurers. Think of it as the know-your-mortgage-originator rules. Good steps to take amid a seeming calm in housing markets – and where they will lead is up to the new finance minister, Joe Oliver.

Minister Oliver will have to address a rather large gap in housing finance risk and its management. That is because federal regulations are federal – meaning that B-20, for instance, does not really cover provincially regulated home lenders, who also sell mortgage risk to insurers.

This matters. Federally regulated chartered banks have perhaps $900-billion in residential mortgage loans outstanding. Next to them, the provincial institutions are small, but the credit unions and caisses populaires still account for about $155-billion in mortgage lending; collectively, that is not small potatoes.

While the lenders are small, their numbers are big, and this is the no-money-down, cash-back mortgage world. And the provincial regulatory system is fragmented, like the market it oversees. For both the regulators and the regulated, risk management and oversight tend to be overtasked and understaffed.

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