Rising consumer debt nationally has raised concern, and now Canada’s financial regulator is taking action by increasing scrutiny of residential mortgages held by banks, according to media reports.
Julie Dickson, superintendent of Financial Institutions (OSFI), said her office is “stepping in to increase the monitoring” of home loans and lines of credit secured by real estate.
TD Economics recently noted in an economic report that the household debt-to-income ratio had reached 147% in the second quarter of 2011. The report explained a ratio of 138% to 142% is considered “appropriate.”
But the trouble might only be starting. TD Economics warned the debt-to-income ratio would rise to 150% by the end of 2012, then 151% by 2013.
Moody’s Investors Service similarly said last week that household loans threaten the Canadian banking system.
Dickson said she is hoping to send an “early warning” to banks about the issue, also working with Bank of Canada Governor Mark Carney and federal Finance Minister Jim Flaherty.
Analysts in a Globe and Mail story explained Dickson’s comments relate concerns that housing prices could decline in Canada and unemployment could increase, thus putting added pressure on borrowers.