The Latest in Mortgage News: Time to Rethink the Stress Test

The stress test is back in the crosshairs of industry analysts.

Earlier this week, CIBC World Markets Deputy Economist Benjamin Tal released a report that attributed an 8% drop in mortgage originations from 2017 to 2018 directly to the federal government’s stress test rules (B-20), which took effect on January 1, 2018.

That translates into a $13-$15 billion drop in lending activity in 2018 attributable directly to the stress test. Overall, activity was down about $25 billion from 2017, with the difference attributed to rising interest rates and lack of affordability in the country’s key markets.

Tal notes that B-20’s impact on driving down originations was due to fewer borrowers, which was down 4.9%, as opposed to smaller average mortgages. The stress test requires that borrowers qualify at a rate 200+ bps higher than their contract rate.

 

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