Bank of Canada & OSFI: Differing Views on Stress Test
So this is interesting, but because it involves Government, not at all surprising.
Unless you have been living under a rock lately you have probably heard of the Mortgage Stress Test, introduced last January 2018. The stress test essentially forces would-be home-buyers to qualify for a mortgage using an interest rate that is 2.00% higher than their actual interest rate. Obviously this rule makes it much harder to qualify for a mortgage, especially in higher valued real estate markets like Toronto and Vancouver.
The overwhelming public consensus is that the Stress Test was introduced to cool over heated real estate markets like Toronto and Vancouver. Recently we heard from both Bill Morneau, Minister of Finance and Carolyn Rogers, Assistant Superintendent, OFSI, and each had a differing view on why the Stress test was introduced:
So there you have it it's clear as night.
So when the Department of Finance, who's job it is to ensure economic stability and OSFI who's job it is to regulate Canada's big 6 Banks have two opposing stands on the reason for the Stress Test, who do we believe and why should we care? Well for starters, and with an unprecedented number of regulatory mortgage rule changes in such a short period (3 years), the fact that the Government and it's regulatory arms are not in agreement with the underlying need for these rule changes, begs the question do they know what they are doing?
If we are to believe OSFI, and we accept that the reason for the Stress Test was to protect Canada's big 6 banks from a US style banking mortgage catastrophe, than we can safely assume that the Stress Test is here for the long term. If on the other hand the Department of Finance is telling us the truth, and the Stress Test was truly meant to control housing prices in Toronto and Vancouver, than it might be a temporary measure, which might be removed or scaled down, now that Home Prices in both Toronto and Vancouver have come down significantly.
In the end, time will tell who is telling us the truth.