Federal banking regulators have published a notice setting out what banks and other mortgage lenders can expect in final rules regarding residential mortgage underwriting practices.

Back in March, the Office of the Superintendent of Financial Institutions (OSFI) published a draft guideline proposing revisions to mortgage underwriting requirements. On Wednesday, OSFI published a notice detailing some of the decisions it has made in the wake of the comments received on the draft guideline. A final version will be issued soon, it notes.

For example, OSFI says that under the revised guidelines, financial institutions will remain responsible for deciding what level of review to place on borrowers’ qualifications when they renew a mortgage; but they will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that they can effectively evaluate their credit risk.

OSFI says it is maintaining its position that the home equity line of credit (HELOC) component of a mortgage should be restricted to a maximum loan-to-value ratio of 65%. However, HELOCs that are at, or below, 65% will not be required to be amortized.

The revised guideline will primarily apply only to the Canadian operations of firms. However, their international mortgage lending and acquisition activities would need to be reflected in the their residential mortgage underwriting policies and in their governance and risk management frameworks. And, it will only apply to mortgage originators (or acquirers), not mortgage insurers (a separate guideline for them will be published for consultation at a later date, it notes).

OSFI also intends to maintain the disclosure requirements in the guideline, “for greater transparency, clarity and public confidence in [firms’] mortgage operations”, but these will now focus on the domestic residential mortgage operations of firms and key mortgage metrics, and will not include information that is considered proprietary.

The regulator also intends to clarify the duties of the board overseeing a financial institution, in terms of their oversight of mortgage underwriting, in the final guideline.

Finally, no substantive changes will be made to the draft guideline regarding the use of automated valuations vs. on-site appraisals, OSFI says. Firms are expected to take a risk-based approach to assessing the value of a property, and it says that they should not rely on any single method for property valuations.