CMHC changes its underwriting practices for mortgage loan insurance


OTTAWA – Canada Mortgage and Housing Corporation relaxes underwriting criteria for mortgage default insurance after changes it made last year were ineffective and cost it market share .

The Federal Housing Agency on Monday said it was back to considering a gross debt service ratio of up to 39% and a total debt service ratio of up to 44% for borrowers with debt. strong track record in managing payment obligations.

Gross debt service refers to the maximum amount of gross annual income that can be used for house-related expenses like mortgages, heating, or condominium fees, while total debt service is calculated when these expenses are combined with monthly debt payments owed on items such as credit cards or cars.

The agency will now also require at least one borrower or guarantor seeking insurance to have a credit rating of 600 or more.

“We are taking this step because our July 2020 underwriting changes were not as effective as we expected and we incurred the cost of declining market share,” CMHC said in a statement. .

Last July, the agency demanded a minimum credit score of at least 680 and limited the gross and total debt service ratios to 35 and 42 percent respectively, which is expected to reduce purchasing power by as much as at 11%.

These measures were aimed at protecting homebuyers, reducing risks to government and taxpayers, and supporting stable housing markets while reducing excess demand and unsustainable price growth during the pandemic.

CMHC’s decision to reverse its policy won’t have much of an impact on consumers, as the change focuses on the assurance lenders get, said James Laird, co-founder and president of the house CanWise Financial Mortgage Brokerage.

When CMHC made its standards more difficult, it said other options were available from rivals Sagen and Canada Guaranty.

“When a company has stricter underwriting criteria than its two competitors, then naturally the market starts using both competitors, a lot more,” said Laird.

CMHC declined to say with whom it lost its market share or how much it was lost.

This report by The Canadian Press was first published on July 5, 2021


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