Canada Mortgage and Housing Corp. (CMHC) has announced that it will ease getting federal mortgage insurance, reverse tougher rules that were imposed a year ago.
The CMHC admitted that last year, in response to the economic uncertainty driven by the COVID-19 pandemic, it unilaterally implemented temporary changes to its underwriting practices for mortgage loan insurance.
“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,” the CMHC said in a statement.
“Effective July 5, 2021, we are returning to our pre-July 2020 underwriting practices for homeowner mortgage loan insurance”, specifically:
– 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.
“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. A healthy market share is an important consideration as it helps us fulfill the financial stability aspect of our mandate. 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,” it said.
“We continue to be vigilant in our underwriting practices as high levels of indebtedness can negatively affect economic growth and put the financial system at risk. We actively monitor market conditions and work with our federal partners to ensure appropriate macro-prudential policies are in place.”
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