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CMHC tightens mortgage insurance rules

Obtaining mortgage insurance for a home purchase is about to become more challenging on July 1, particularly for first-time buyers.

The Canada Mortgage and Housing Corporation (CMHC), Canada’s national mortgage insurance provider, unveiled stricter underwriting policies on Thursday for insured mortgages. The measures include:

  • Limiting Gross Debt Service (GDS) ratios to 35% (from 39%)

  • Limiting Total Debt Service (TDS) ratios to 42% (from 44%)

  • Raising the minimum credit score to 680 (from 600) for at least one borrower

  • Banning non-traditional sources of down payment that “increase indebtedness”

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said CMHC CEO Evan Siddall in a statement.

“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.”

What do the Changes Mean for Buyers?

CMHC’s changes will effectively reduce homebuyers’ purchasing power by up to 11%, according to

“Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules,” the site noted. “That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!”

Roughly 18% of CMHC’s high loan-to-value originations had a Gross Debt Ratio of more than 35%, according to a report from RBC Economics.

And about 5% of CMHC’s originations had credit scores of less than 680, according to data from Mortgage Professionals Canada.

CMHC Going It Alone?

One of the biggest questions since a leak of the new rules made the rounds on Thursday has been whether CMHC’s competitors, Canada Guaranty and Genworth Canada, would have to adopt the stricter underwriting measures as well.

According to the RBC Economics report, they won’t, at least not for now.

“Genworth Canada (MIC) and Canada Guaranty (CG) confirmed to us that they have not been told to adopt any or all of the same underwriting changes,” the report notes. “…although we would not be surprised if they were to eventually adopt some (e.g., down payment sources, credit score) or even all of the changes.”

For what it’s worth, that same report notes that it’s “interesting” that CMHC delivered the announcement, since mortgage insurance market changes have historically been announced by the Department of Finance.



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