CMHC TIGHTENS DUE to COVID 19 Projection **UPDATED**
Updated: Jun 9, 2020
As you are fully aware by now CMHC has just announced a MAJOR change to the qualification guidelines for INSURED mortgages (anyone buying with less than 20%).
**UPDATE** Genworth and Canada Guaranty (the two other insurers in Canada) have made it clear that they are NOT going to follow CMHC with these guideline changes!
These changes are a direct result of the COVID 19 CMHC report and will take effect JULY 1st.
For all of those looking to understand the most recent CMHC change, here is what we know, some common questions and the CMHC release.
First, Will this buying power?..... YES
HOW MUCH? - this will reduce a borrowers GDS (gross debt servicing) from 39% of income to 35% reducing their borrowing power by approximately 10%. This reduces qualification
What is with the credit score??
Client will HAVE to pay attention to their credit score more now and the initial borrower will require 680 BEACON.
What about borrowed downpayment?
This will be gone July 1st - for the foreseeable future
Does this impact current pre-approvals?
As of July 1st if they are not approved, or don't fit the credit, downpayment requirements. YES!
What don't we know yet:
There are 3 insurers in Canada, we don't yet know if all 3 will change, but very likely.
Will it go beyond the 12 months? Hard to say
What now? Go tell everyone who's buying with less than 20% to get off the fence.
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:
Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
Establish minimum credit score of 680 for at least one borrower; and
Non-traditional sources of down payment 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.