CMHC ANNOUNCES CHANGES TO MORTGAGE INSURANCE

CMHC Announces Changes to Mortgage Insurance Underwriting and Acceptance Criteria…Yesterday afternoon, CMHC announced changes to its mortgage insurance underwriting and acceptance criteria.

 

The COVID-19 pandemic is affecting all sectors of Canada’s economy, including housing. Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, and CMHC foresees a 9% to 18% decrease in house prices over the next 12 months. In order to protect future home buyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages.

 

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35
  • The maximum total debt service (TDS) ratio drops from 44 to 42
  • The minimum credit score rises from 600 to 680 for at least one borrower
  • Non-traditional sources of downpayment that increase indebtedness will no longer be treated as equity for insurance purposes

To further manage the risk to our insurance business, and ultimately taxpayers, during this uncertain time, we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing. Consultations have begun on the repositioning of our multi-unit mortgage insurance products.

 

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

 

These decisions are within CMHC’s authorities under the National Housing Act and are in anticipation of potential house price adjustment. We will continue to monitor market conditions and work with our federal colleagues on potential macro-prudential policy options.

 

CMHC supports the housing market and financial system stability by providing support for Canadians in housing need, and by offering housing research and advice to all levels of Canadian government, consumers and the housing industry.It is important for our members to note that this is a CMHC announcement, and as the release states: “These decisions are within CMHC’s authorities under the National Housing Act.”  This is not a directive from the Ministry of Finance. As such, as Canada’s private mortgage insurers, Genworth’s and Canada Guaranty’s criteria is not directly affected. Early indications seem to suggest that the private insurers will not follow in lockstep with these changes, but each are currently determining their specific response. More details are expected early next week, and I anticipate some differentiation in risk appetites will create additional competition and a shift in market share over time.

We will keep you informed of additional details as they become clear.

 

For all of your mortgage questions, broker Kevin Decker can be reached after at 250 619 2262 and broker Jason Barudin can be reached at 250 668 2203.

 

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