Share prices of alternative mortgage lenders slipped Friday as investors weighed the impact of the latest proposed changes in home financing ushered in by Canada’s top financial services regulator.

Home Capital Group Inc., Equitable Group Inc., and Equity Financial Holdings Inc. shares all lost ground on Friday.

On Thursday, the Office of the Superintendent of Financial Institutions proposed a required stress test to qualify for all uninsured mortgages. In addition, OSFI proposed to prohibit co-lending or mortgage “bundling” arrangements that appear designed to circumvent regulatory requirements.

A bundled mortgage is when two lenders partner to secure a loan against the same property. If only one lender is regulated by OSFI, the loan-to-value ratio on the property — a key measure of risk — may appear lower than it is when both lenders are taken into account.

Analysts said OSFI’s proposed prohibition on such arrangements, if adopted, would affect a small segment, estimated at around one per cent, of the mortgage market. However, they said the biggest impact would be felt by alternative mortgage lenders, firms that provide loans to people who don’t qualify for funding from the big banks.

“With respect to the alternative mortgage market, we believe the draft changes … will shrink both the pool of qualified mortgage borrowers and the mortgage size that borrowers can obtain,” National Bank analyst Jaeme Gloyn said in a note to clients.

He said some relief could be obtained through a “trickle down” of clients from the big banks as they tighten their underwriting practices and push certain borrowers down the credit risk spectrum. But the overall impact on alternative mortgage loan growth is expected to be negative, the analyst said.

The potential changes, which were proposed as part of a broader effort by policymakers and regulators to rein in risks from Canada’s red-hot housing market, are “net net-negative for alternative lenders, thus validating our ongoing cautious stance on the mortgage industry overall,” Gloyn said.

The share prices of alternative lenders may already be reflecting the impact of ongoing efforts to cool the frothy housing market, but the analyst suggested investors wait for “better visibility” on risks such as the weakening housing market in the Greater Toronto Area and rising interest rates.

OSFI’s proposed new stress test for uninsured mortgages would require a qualifying rate to be at least the contractual mortgage rate plus two per cent.

Gloyn’s analysis suggests a typical alternative mortgage borrower would have to qualify at a rate of 6.65 per cent, which would increase the borrower’s monthly payment by about $567, or 21 per cent relative to the current qualifying measure. His example was based on an average home in Toronto with a 25-per-cent down payment and a 30-year amortization.

“For an average dual income household in Ontario, this translates to a 700 basis point increase in the gross debt service (GDS) ratio,” Gloyn said. “We believe this represents a material increase that will reduce the pool of mortgage borrowers that qualify against an alternative lenders’ internal GDS maximum limits.”

Home Capital and Equity Financial Holdings issued news releases Thursday saying they are evaluating OSFI’s proposals, which are to be finalized in the fall following a comment period.

Separately, Home Capital announced that it had created a new position — executive vice-president, strategy — to be filled by Greg Parker, who was executive vice-president of enterprise risk management and chief risk officer. His previous role will be handled by David Cluff, who was chief credit officer.

Shares of Home Capital slipped 74 cents on Friday, closing at $15.13, while Equity Financial Holdings stock was down 75 cents to a 52-week low of $7.40. Equitable Group shares closed at $56.98, down $1.75.