News
CMHC Announces Changes to Mortgage Securitization Rules for CMHC – Insured Mortgages
On Thursday, June 4, 2020 Canada Mortgage and Housing Corporation (CMHC) announced new changes to mortgage securitization rules for CMHC-insured mortgages. The new measures to be implemented on July 1 include: establishing a minimum credit score of 680 instead of the current 600; limiting total gross debt servicing ratios to its standard requirement of 35 per cent of annual income, compared to a threshold as high as 39 per cent currently; limiting total debt servicing to 42 per cent versus as much as 44 per cent now; and lastly, they will no longer be accepting non-traditional sources of down payment that increase indebtedness (i.e. credit cards, unsecured lines of credit, personal loans, etc).
According to CMHC CEO Evan Siddall, these measures are intended to “protect the economic futures of Canadians” by helping to “curtail excessive demand and unsustainable house price growth.” However, these changes clearly represent another active step on behalf of CMHC to restrict Canadians’ access to homeownership as these changes will effectively push more potential home buyers out of the housing market. These changes will make it harder for “higher risk” borrowers (i.e. those who offer down payments of less than 20 per cent) to access mortgage insurance. As a result, we can expect to see many well-qualified Canadians barred from becoming homeowners – Canadians who still have well-paying jobs and should be able to buy homes as part of their financial futures and as contributors to overall economic activity.
In addition, the timing of these changes deserves some criticism. The implementation of these measures will limit new buyers from getting into the market at a time when the economy is desperately looking for new investment. These changes will also limit the role that residential construction could play in terms of job creation and economic stimulation in our nation’s recovery after the COVID-19 pandemic has run its course.
We believe it is no coincidence that the announcement of these changes comes just a couple weeks after the release of CMHC’s controversial Housing Market Outlook which forecasted declines of between 9 and 18 percent in home prices over the next 12-months. Ultimately, instead of protecting Canadians and the Canadian economy, these changes will have negative impacts on the Canadian housing market, while conveniently benefiting CMHC as it looks to reduce the amount of risk in its portfolio. If the predictions of CMHC’s Housing Market Outlook seemed far off and exaggerated a couple of weeks ago, the recently announced changes to mortgage securitization rules may serve to make their pessimistic forecast a reality.
Note that these changes only apply to CMHC and as such, Canada’s private mortgage insurers, Genworth and Canada Guaranty, are not directly affected. Early indications seem to suggest that the private insurers will not follow in lockstep with these changes, particularly around debt service ratios, but each are currently determining their specific response. As we await more details, it does appear this will result in additional competition and a shift in market share away from CMHC over to private insurers.
As CMHC’s moves limit access to homeownership, the question now becomes what the government will do with its policy levers to support recovery in the housing sector. The RRHBA will support our national office (CHBA) in recommending against these measures and we will actively speak out against these changes. Our Association plans to take the following actions:
- Openly expressing our opposition to these decisions and raising our concerns about the potential impacts these changes will have on the housing market, Canadians and our members.
- Supporting the efforts of CHBA to call for the immediate implementation of the changes to the qualifying benchmark rate (stress test) that were planned to go forward on April 6, 2020 as well as other measures the offset the impact of this move.
- Communicating with local MP’s to express our opposition to these measures, especially given the economic uncertainty we’re currently facing and the need to provide support for the local residential construction sector and homebuyers.
- Submitting formal letters on behalf of the RRHBA to CMHC and the Minister responsible for Housing to express our strong concerns related to this issue and to call for immediate changes.
