Yet another warning about the exposure lenders and borrowers face in the event of a drop in house prices in Canada. This time, the warning is from Jeremy Rudin, head of the Office of the Superintendent of Financial Institutions (OSFI).
In an address to the 2016 Mortgage Professionals Canada National Conference in Vancouver, Rudin warns:
A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers. The risk of those losses would be driven by a combination of two factors:
• the growing inability of borrowers to meet their debt obligations; and
• the declining values of the real estate properties pledged as collateral in mortgage loans.It is our job to get out in front of the risks.
The bulk of Rudin’s address focuses on the role OFSI plays in housing finance:
Our focus is on the safety and soundness of federally regulated financial institutions. We are charged by Parliament with protecting depositors, policyholders and other creditors to the institutions, while allowing those institutions to compete effectively and take reasonable risks.
A transcript of Rudin’s prepared remarks is available on the OSFI website here.
You can also get a PDF of his remarks here.