In June CMHC announced big changes to the way they underwrite mortgage applications which include three significant changes which will be outlined below.
Increase in Minimum Credit Score
The increase to the minimum credit score went up from 600 to 680.
A Decrease in Debt Service Ratios
Income to debt ratios also known as growth debt service and total debt service. These went down from 39 and 44 to 35 and 42, respectively.
No Borrowed Sources of Down Payment
This eliminated the flex down program which was a program that allowed clients to use their line of credit or a loan as a down payment.
Who is CMHC and why are they so important?
CMHC is the Canadian Mortgage and Housing Corporation. CMHC is a crown corporation and one of three mortgage insurers in Canada. The other two are Genworth Financial and Canada Guarantee. Insurers essentially guarantee mortgage loans for banks and lenders. Without having mortgage default insurance, applicants are unable to purchase a home with less than 20% down. It does not matter who your mortgage is insured with as all three of them had identical policies when it came to a down payment, credit, and income to debt ratios. This is due to them being very heavily regulated by the federal government.
This changed on June 8th, 2020 when Genworth Canada announced that they would not be making any changes to their existing guidelines. Since all three mortgage insurers generally follow the same guidelines and the same rules the announcement during the week before June 8th was met with a lot of panic and speculation. Genworth Canada’s update on June 8th provided a sigh of relief for clients as well as real estate and mortgage professionals.
Due to the economic impact of Covid-19, CMHC and the federal government has taken on an unprecedented amount of risk over the last few months. This is due to the federal government trying to provide much-needed liquidity to the Canadian banking system. This is just a way for CMHC to close the task for a bit and diversify some of that risk away from the taxpayer.
Contact The Mortgage Force Team
If you have any questions reach out to Sunny Vig and The Mortgage Force Team. We work with a variety of lenders and all three insurers to get our clients into their homes.