CMHC tightens mortgage regulations slightly
Canada Mortgage and Housing Corp. (CMHC) has tightened mortgage regulations slightly in response to deteriorating economic conditions brought on by COVID-19.
Effective July 1, new applications for homeowner transactional and portfolio mortgage insurance would have to meet a minimum credit score of 680 for at least one borrower. In addition, funds borrowed for a down payment that increase indebtedness will no longer be treated as equity for insurance purposes, and Gross/Total Debt Servicing ratios are to be limited to the standard requirements of 35/42.
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” says Evan Siddall, CMHC president and CEO. “These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, CMHC says, with potentially a nine- to 18-per-cent decrease in house prices over the next 12 months.
“CMHC’s policy changes come at an interesting time when the housing market finally seems to be getting back on track after a substantial drop in sales during April and May,” Jesse Abrams, co-founder and CEO of Homewise told Condo Life magazine. “These changes will not only make qualifications tougher, pushing up the floor for credit scores to 680, but also decrease the affordability of many buyers who need an insured mortgage by lowering debt to income ratios. Unfortunately, the hardest-hit market may be first-time homebuyers.”
Another national mortgage insurer, Genworth Canada, says it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements.
“Genworth’s decision to not follow CMHC’s policy changes creates a competitive advantage for them in the marketplace, while reigniting the flame of many prospective homebuyers who were demotivated by CMHC’s decision,” Abrams says. “Most lenders use both CMHC and Genworth, so it is quite possible that the CMHC policy change does not actually affect any homebuyers.”