CMHC to Limit Mortgage Insurance Product Offerings

[TimLacroix]

Friday April 25, 2014 - CMHC Announcement

CMHC announced that it would stop insuring both second homes and self-employed borrowers WITHOUT traditional proof of income, effective May 30, 2014.

See CMHC Announcement (http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-04-25-1600.cfm)
CBC News Article (http://www.cbc.ca/news/business/cmhc-to-limit-mortgage-insurance-product-offerings-1.2622822)

Will post more details in the coming week.

NOTE: Genworth Canada and Canada Guaranty are reviewing CMHC's changes to determine whether or not they will follow suit with these changes! This changes noted are CMHC only at the moment. More details to follow.

A quick snapshot of what the impact is to borrowers:

1- The last day to submit CMHC-insured “stated income” and second home mortgage applications is May 29 (but many lenders may set a cut-off date earlier than this.)

2- Self-employed borrowers that can prove income traditionally are not impacted (for example; using a 2-year average of income from their NOAs, grossed up by 15% to account for write-offs)

Self-employed who can’t prove income traditionally will need to look at alternative lending options. Please PM for more details.

3- Canadians who buy a second home with less than 20% down, will also need to look at other lending options... please PM for details.

4 - The new limitations mean borrowers will also no longer be able to act as co-borrowers on other applications. Anyone with a CMHC-insured residence will no longer be able to obtain, or co-sign for, an additional CMHC-insured mortgage.

REMINDER - Default Insurance Premiums Increasing May 1, 2014
Read More on CMHC Increase of Premiums (http://cgymortgage.com/blog/CMHC+Increases+Premiums+Commencing+May+2014)

If you have questions regarding the changes, please do not hesitate to call, email or PM me for further details.

[FraserB]

Tim,

I assume that this would mean that if I wanted to purchase a new house while keeping an existing condo as a rental I'd need 20% down on the new house?

[J-D]

I actually don't mind these changes... If you can't throw down 20% you shouldn't have a second property.

[BigMass]

Originally posted by FraserB
Tim,

I assume that this would mean that if I wanted to purchase a new house while keeping an existing condo as a rental I'd need 20% down on the new house?

all these changes will impact Calgary probably more than any other city in Canada due to our high level of contract workers paying themselves poverty level salaries and/or dividends and 80k/year middle class Donald Trump wannabe's leveraging themselves up the ass to buy as many "investment properties" as their monthly salary allows (god forbid they ever lose their jobs)

[TimLacroix]

Originally posted by FraserB
Tim,

I assume that this would mean that if I wanted to purchase a new house while keeping an existing condo as a rental I'd need 20% down on the new house?

Essentially yes unless the original purchase was made with 20% down payment.

Keep in mind that this applies to CMHC only. We have 2 other insurers that can be used for the new purchase... and they have not indicated whether they are going to adopt the changes as well.

[J-D]

Originally posted by TimLacroix


Essentially yes unless the original purchase was made with 20% down payment.

Keep in mind that this applies to CMHC only. We have 2 other insurers that can be used for the new purchase... and they have not indicated whether they are going to adopt the changes as well.

Ignoring these new changes, is there any real advantage or disadvantage to Genworth or AIG over CMHC?

[BigMass]

considering tax payers guarantee Genworth mortgage liabilities I don't see how the government can tighten CMHC but not force the other lenders to the same standards.

[TimLacroix]

Originally posted by J-D


Ignoring these new changes, is there any real advantage or disadvantage to Genworth or AIG over CMHC?

From a consumer point of view, Canada Guaranty and Genworth offer similar products as CMHC... it is typically the lenders that choose which insurers they prefer to send business too based on products and underwriting guidelines.

[TimLacroix]

Originally posted by BigMass
considering tax payers guarantee Genworth mortgage liabilities I don't see how the government can tighten CMHC but not force the other lenders to the same standards.

Currently it appears that the decision was solely a business decision by CMHC and no indication that Department of Finance nor (OSFI) Office of the Superintendent of Financial Institutions were not behind this decision.

It is too early to determine what Genworth and Canada Guaranty will do. We will update everyone as soon as more information becomes available...

[nobb]

Do you guys think this will bring housing prices down in the short term? Less people qualifying for mortgages = less demand.

Looking to purchase a second home shortly, but unsure of when to enter the market.

[BigMass]

Originally posted by nobb
Do you guys think this will bring housing prices down in the short term? Less people qualifying for mortgages = less demand.

Looking to purchase a second home shortly, but unsure of when to enter the market.

doubt it. There are ways around everything that's why all the supposed "tightening" CMHC and the government has done has accomplished almost nothing. You can still pretty much buy a home with 0% down with some clever accounting and lending schemes out there. The only thing that will make any sort of difference is a sharp rise in rates and it's going to be 2143 before that happens.

[G]

This is going to throw a kink in ercchry's way of skirting around needing to put 20% down for an "investment" property.

[Sugarphreak]

...

[ercchry]

Originally posted by G
This is going to throw a kink in ercchry's way of skirting around needing to put 20% down for an "investment" property.

used genworth the last time around :poosie:

20:1 leveraged investment > 5:1 leveraged :dunno:

[CapnCrunch]

I always though the "stated income" clause was bullshit. I would never lend to anyone on what they "stated" they made.

Half of the internet would be living in mansions on 40 acres with hedge mazes and butlers and indoor waterparks.

[Xtrema]

Originally posted by CapnCrunch
I always though the "stated income" clause was bullshit. I would never lend to anyone on what they "stated" they made.

Half of the internet would be living in mansions on 40 acres with hedge mazes and butlers and indoor waterparks.

I have heard lots of cases where mortgage approved on exaggerated "stated income". Some with even photoshopped or altered PDF documents.

I'm not smart enough to propose a solution for this other than banning the self employed to access CMHC which I don't think it's right.

[CapnCrunch]

Originally posted by Xtrema


I have heard lots of cases where mortgage approved on exaggerated "stated income". Some with even photoshopped or altered PDF documents.

I'm not smart enough to propose a solution for this other than banning the self employed to access CMHC which I don't think it's right.

That's the thing. I'm self employed and haven't used the stated income to get a mortgage.

Either you make income and prove it, or nobody lends you money.

[TimLacroix]

Originally posted by CapnCrunch


That's the thing. I'm self employed and haven't used the stated income to get a mortgage.

Either you make income and prove it, or nobody lends you money.

Genworth Canada and Canada Guaranty have kept the Business for Self program (stated income). They are not following CMHC as it was purely a business decision for CMHC.

Everyones situation is unique for this program and not everyones budget etc fits a stated income solution.

Keep in mind that some lenders have tighter Business for Self guidelines regardless of what Genworth and CG are offering.

if you have specific questions, please PM and I will provide additional details.