OSFI Adjusts Mortgage Insurers' Capital Rules to Account for the Rise in Negative Amortization Mortgages

DBRS Morningstar commented on the recent adjustments to mortgage insurers’ capital requirements.

Key highlights include

-- Housing prices and sales activity remain below the historical peak reached in Q1 2022, prior to the start of the monetary policy tightening cycle.

-- Negative amortization mortgages have become more prevalent than ever before, increasing the mortgage default risk.

-- Mortgage insurers will face higher capital requirements in 2024, but we expect minimal negative impact on their capital ratios.

“DBRS Morningstar expects the current housing market downturn to be manageable for mortgage insurers, despite lower business volumes and an increased risk of mortgage defaults. Our outlook is, importantly, contingent on the continued resilience of the Canadian labour market,” said Nadja Dreff, Senior Vice President, Head of Canadian Insurance.