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The capital changes proposed last week by the Office of the Superintendent of Financial Institutions require added consideration of factors including the credit score, outstanding loan balance, and amount of time left to fully repay the mortgage for those who require default insurance. The new rules are to come into effect Jan. 1 following a consultation period, and are intended to account for risks in hot real estate pockets across the country including high price-to-income ratios.

Genworth MI Canada Inc., the parent company Canada’s largest private residential mortgage insurer, issued a statement Friday that said the company expects it will compliant with the new framework, “subject to business and market conditions.” The mortgage insurer estimates its pro forma minimum capital test ratio as of June 30 at between 153 per cent and 156 per cent, above OSFI’s target of 150 per cent.

Routledge said he expects two headwinds to hit the Canadian housing market if the OSFI mandated changes go ahead as proposed: higher mortgage rates and a higher probability that foreclosures will increase. The combined impact could contribute to a cooling of the market.

“Mortgage insurance premium increases passed on to the homebuyer through higher mortgage interest rates will reduce affordability, potentially stunting sales activity and slowing house price appreciation,” the analyst wrote.

He said higher mortgage insurance premiums would hit the first-time homebuyers hard, as well as the mortgage broker channel that relies on this group. As a result, he believes, mono-line mortgage lenders that originate prime insured mortgages through the broker channel “are most at risk to a slowdown in sales activity directly related to higher mortgage insurance premiums.”