The Globe and Mail reports in its Friday, July 8, edition that the Office of the Superintendent of Financial Institution has taken
the rare step of issuing a public letter to
financial institutions that heralds a stricter scrutiny of their lending
practices. A Globe editorial says OSFI rightly notes
that the combination of exceptionally low interest rates and rapid
price increases for real estate
has greatly magnified the risks for all concerned.
OSFI is especially worried about "borrowers
relying on income from sources outside of Canada." That touches
on the tricky question of the role of foreign buyers in Canada's
housing price explosion.
Even though we do not have a perfect picture of
what is driving the housing market, The Globe says it is reasonable to look at raising
lending standards as well as mortgage standards. OSFI is rightly
concerned that the homeowners, and their bankers, are extremely
vulnerable if and when economic conditions deteriorate.
Finance Minister Bill Morneau has convened a study group of experts
who have been asked to examine the mysteries of the current
housing market. In the meantime, The Globe says a more watchful, conservative
approach to lending is needed.
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