CMHC Admits Mistake, Reverses Changes Made to Mortgage Underwriting Practices
A year after announcing a pandemic-inspired change in policy to its mortgage underwriting practices, the Canadian Mortgage and Housing Corporation (CMHC) is reversing course.
In response to the economic uncertainty (fuelled by doom and gloom predictions), the mortgage insurer unilaterally implemented stricter temporary changes to its underwriting practices for mortgage loan insurance last July.
“We felt these changes would protect homebuyers, reduce government and taxpayer risk, and support the stability of housing markets while curtailing excessive demand and unsustainable price growth,” said CMHC in a press release.
Last year’s changes involved:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42
- Establish minimum credit score of 680 for at least one borrower
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
But effective yesterday, the organization announced that they are returning to their pre-July 2020 underwriting practices for homeowner mortgage loan insurance. The CMHC admitted that the tighter underwriting changes were “not as effective as we had anticipated, and we incurred the cost of a decline in our market share.”
With the update, CMHC is lowering the required credit score and loosening other measurements.
The updated practices are as follows:
- 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.
- At least one borrower (or guarantor) must have a credit score that is greater than or equal to 600 at the time of the request for insurance.
- As always, CMHC will consider the overall strength of the mortgage loan insurance application, including alternative methods of establishing creditworthiness for borrowers without a credit history.
“A healthy market share is an important consideration as it helps us fulfill the financial stability aspect of our mandate,” said CMHC. “We aim to maintain enough presence to be able to: a) step in to support financial stability and b) absorb additional market share as required.”
So, in a real estate climate of perpetual disappointment for first-time homebuyers (and their would-be counterparts), the good news is that it’s now at least a little easier to get federal mortgage insurance.
As for finding a home in markets like Vancouver, Toronto, or even Hamilton within your budget, that’s another story…