On June 4, 2020, the Canadian Mortgage and Housing Corporation (CMHC) announced changes to the eligibility rules for mortgage insurance. CMHC provides insurance that protects lenders if homeowners default on their mortgage.
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 a 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.
The CMHC has also decided to suspend refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.
Evan Siddall, CMHC’s President and CEO says, “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.”
The two other non-government providers of mortgage default insurance in Canada, Genworth and Canada Guaranty have yet indicated they will follow suit by adopting the new rules. Since they are both private lenders they’re not required to adopt the CMHC rule changes.