CMHC changes underwriting practices on mortgage loan insurance

CMHC changes underwriting practices on mortgage loan insurance

OTTAWA - Canada Mortgage and Housing Corp. is easing its underwriting criteria for mortgage loan insurance after changes it made last year were not effective and caused it to lose market share.

The federal housing agency said Monday that it returned to considering a gross debt service ratio of up to 39 per cent and a total debt service ratio of up to 44 per cent for borrowers who have a strong history of managing payment obligations.

Gross debt service refers to the maximum amount of gross annual income that can be used for home-related expenses like mortgages, heat or condo fees, while total debt service is calculated when these expenses are combined with monthly debt payments owed on items such as credit cards or cars.


The agency will also now request at least one borrower or guarantor seeking insurance have a credit score that is greater than or equal to 600.

“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,” CMHC said in a release.

Last July, the agency required a minimum credit score of at least 680 and limited the gross and total debt servicing ratios to 35 and 42 per cent respectively, which it expected to decrease purchasing power by up to 11 per cent.

Those moves were meant to protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable price growth during the pandemic.

CMHC's decision to reverse its policy won't have much impact on consumers because the change is focused on insurance that lenders obtain, said James Laird, the co-founder of Ratehub.ca and president of the CanWise Financial mortgage brokerage.

When CMHC made their standards more difficult, he said other options were available from rivals Sagen and Canada Guaranty.

“When one company has tougher underwriting criteria than their two competitors, then naturally the market starts to use the two competitors, much more,” said Laird.

CMHC declined to share who they lost their market share to or how much of it was lost.


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