CMHC changes designed to protect home buyers will take effect July 1, 2020
Saturday Jun 27th, 2020
Earlier this month, the Canadian Mortgage and Housing Corporation (CMHC) announced changes to mortgage eligibility rules for insured mortgages. CMHC provides insurance to home buyers to protect lenders if a homeowner were to default on their mortgage. If a buyer purchases a home less than $1,000,000 and has less than 20% of the purchase price as a down payment, mortgage default insurance is mandatory. (Homes with a purchase price of $1,000,000 or more are not eligible for CMHC insurance.) These new rules are designed to reduce the risk for future home buyers and are in effect as of July 1, 2020.
CMHC Mortgage Eligibility Rule Changes are as followed:
- At least one applicant’s credit scores will need to be at least 680, up from 600.
- The maximum total debt service ratio is now 42, down from 44.
- The maximum gross debt service ratio is now 34, down from 39.
- Finally, buyers will no longer be able to borrow money for a down payment.
In a press release dated June 4, 2020, Evan Siddall, CMHC's President and CEO, said, “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians. 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.” Evan Siddall went on to further release this statement on twitter defending the CMHC's decision.
We acknowledge the potential "pro-cyclical" negative impacts on #housing markets of @CMHC_ca’s decision to tighten underwriting. However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure— Evan Siddall (@ewsiddall) June 5, 2020
In response, Genworth MI Canada Inc. announced that it was not planning to change its underwriting policy, stating that it's existing policies allow the company “to prudently adjudicate and manage its mortgage insurance exposure.”
So, what does this mean for homebuyers?