The Canada Mortgage and Housing Corporation (CMHC) is easing their mortgage rules by going back to their pre-July 2020 underwriting practices for homeowner mortgage loan insurance. The CMHC is making it easier to get federal mortgage insurance and admits that tightening the rules a year ago was a mistake.
“We are taking this action because our July, 2020, underwriting changes were not as effective as we had anticipated and we incurred the cost of a decline in our market share,” the CMHC said in an announcement. The mortgage insurer thought that these changes would protect homebuyers, reduce government and taxpayer risk, and stabilize the housing market. However, they ended up losing market share to other private insurers and did not slow down the housing demand.
Effective Monday July 5th, CMHC lowered the required credit score and ratios that qualifies homeowners for their mortgage insurance. At least one borrower must have a credit score that is greater than or equal to 600 at the time of the request for insurance. Under the new rules, CMHC will consider a Gross Debt Service (GDS) ratio up to 39% and Total Debt Service (TDS) ratio up to 44% for borrowers who have a strong history of managing their payment obligations.
According to the Globe and Mail “The rule reversal is CMHC’s first major action under new chief executive Romy Bowers, who took over in April, and it brings the CMHC in line with Canada’s two private mortgage insurers – Canada Guaranty Mortgage Insurance Co. and Sagen MI Canada Inc. – which never matched the CMHC’s tougher rules last year.”
Major lenders require mortgage insurance if a borrower makes a down payment of less than 20% of the home purchase price and borrowers are usually not the ones choosing which insurer they use, whether it’s the CMHC or a private-sector insurer. The CHMC’s decision to reverse its rules does not have a major impact on consumers since the change is focused on insurance that the lenders obtain.
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