CMHC Changes Mortgage Insurance Underwriting Practice

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OTTAWA – Canada Mortgage and Housing Corp. is easing its underwriting criteria for mortgage insurance after last year’s changes failed to take effect and resulted in a loss of market share.

The Federal Housing Agency said Monday that it has returned to reviewing a debt service ratio of up to 39 percent and a total debt service ratio of up to 44 percent for borrowers who have extensive experience managing payment obligations.

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

The agency will also now ask at least one borrower or guarantor seeking insurance for a credit rating greater than or equal to 600.

“We are taking this action because our July 2020 underwriting changes were not as effective as we expected and we suffered losses related to a reduction in our market share,” the CMHC said in a statement.

Last July, the agency required a minimum credit rating of at least 680 and capped gross and total debt service ratios to 35 and 42 percent, respectively, which it expects will reduce purchasing power by 11 percent.

The moves were designed to protect home buyers, reduce government and taxpayer risks, and maintain stability in housing markets, while limiting excessive demand and volatile price increases during the pandemic.

The CMHC’s decision to cancel its policy won’t have much of an impact on consumers because the change is about insurance that lenders receive, said James Laird, co-founder of Ratehub.ca and president of mortgage brokerage CanWise Financial.

As the CMHC complicated its standards, it said other options were available from competitors Sagen and Canada Guaranty.

“When one company has stricter underwriting criteria than its two competitors, then the market naturally begins to use the two competitors to a much greater extent,” Laird said.

CMHC declined to disclose to whom they lost their 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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