Eased CMHC mortgage insurance rules will have ‘minimal’ impact on homebuyers, experts say, as it lost much of its market share to private mortgage insurers.
July 6, 2021 July 6, 2021 2 min read
flag wire: false flag sponsored: false article_type: pubinfo.section: cms.site.custom.site_domain : thestar.com sWebsitePrimaryPublication : publications/toronto_star bHasMigratedAvatar : true firstAuthor.avatar : https://bloximages.chicago2.vip.townnews.com/thestar.com/content/tncms/avatars/0/09/2e5/0092e564-a1bf-11ed-9b84-4ba88f2db83a.b98b2d980b2d4c10c57754449207b7bb.png?_dc=1675207732
By Jacob Lorinc Business ReporterIt’s now easier to get federal mortgage insurance after the Canada Mortgage and Housing Corp. reversed tougher rules introduced a year ago to protect homebuyers and curb demand.
On Monday, the CMHC loosened restrictions that made it harder for prospective buyers with above-average debt loads to be approved for a mortgage. The corporation lowered buyers’ required credit score to 600 from 680, and adjusted the maximum amount of debt-to-income that buyers can carry.
This means that borrowers with temporarily larger debt loads — for example, university graduates with stable incomes but lingering student debt — will have more options for getting mortgage insurance, says mortgage broker Rob McLister.
ARTICLE CONTINUES BELOWPractically, though, the change has little impact on buyers, he says. When the CMHC reduced its insurance offerings in July 2020, Canada’s two private mortgage insurers filled the gap, offering the same product without the same tougher rules.
Sagen MI Canada Inc. and Canada Guaranty Mortgage Insurance Co. declined to match CMHC’s new restrictions, taking CMHC’s would-be clients and gobbling up the market share that the corporation left behind.
The CMHC acknowledged its mistake in Monday’s announcement, writing that the changes “were not as effective as we had anticipated and we incurred the cost of a decline in our market share.”
The corporation anticipated that the stricter rules would protect homebuyers and cool the spike in real estate demand. But it did neither, says mortgage broker Ron Butler. Buyers simply turned to the private sector for mortgage insurance, while the housing market saw prices rise at a faster pace than ever before. According to estimates from RBC Capital Markets, the CMHC instead lost roughly half its market share to private insurers.
“This has almost nothing to do with the consumer and their access to mortgage insurance,” Butler said. “Homebuyers, yesterday and today, have the same access to mortgage insurance because the private insurers didn’t adjust their rules along with the CMHC.”
ARTICLE CONTINUES BELOW ARTICLE CONTINUES BELOWAt most, McLister says the decision may present new options for consumers “at the margins.”
“Maybe if a place like Sagan denies you mortgage insurance, you might now be eligible to get it from the CMHC,” said McLister. “But these are rare scenarios.”
The federal government has introduced a string of changes to Canada’s mortgage lending system, each one seemingly designed to reduce its exposure to the housing market and avoid mass defaults among new homebuyers.
In June, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, tightened its so-called stress test for mortgage applicants, requiring buyers seeking an uninsured mortgage to prove they could handle higher interest rates so as not to default on payments.
By design, the moves make it harder for first-time homebuyers in particular to take out mortgages and purchase real estate. In the past year, the Bank of Canada and independent economists alike have warned that homebuyers are taking on too much debt, exposing themselves and the institutions they borrow from to a correction in the housing market. By tightening its rules, Ottawa has sought to limit its offerings to households with strong credit scores and a greater likelihood of repaying their debt.
