CMHC’s changes prompt mixed reactions

The Canada Mortgage and Housing Corporation (CMHC) recently announced changes to its mortgage default insurance products. Also called mortgage loan insurance, these products protect mortgage lenders against financial losses in the event that the borrower stops making payments. Home buyers who put down less than 20 percent (called a high-ratio mortgage) are required to pay for mortgage insurance. CHMS has not insured loans for the construction of multi-unit condo buildings since 2011, but now it has officially discontinued that product, according to the Globe and Mail. This change took effect immediately and impacts building developers only, not individual condo buyers.

The federal government has been trying to limit CMHC’s share of the housing market to help shield Canadian taxpayers from financial risk in the event of a housing slump. As of July 31, CMHC will no longer insure second homes or properties costing over $1 million and the maximum amortization period will be 25 years. Evan Siddall, current CEO of CMHC, said in an interview with the Globe and Mail that the new policies will help “Canadians meet their housing needs, not exceed them.” In other words, CMHC will now focus on insuring more modest homes instead of the luxury market.

Reactions to these new developments have been mixed. Some brokers felt the Crown corporation’s policies should take into account regional variations in real estate prices. Stats from the Canadian Real Estate Association show that the composite price for a two-story single-family home in greater Vancouver tops $1 million, so under CMHC’s rules, many buyers in that region would need to come up with a 20 percent down payment or perhaps move further away from the city to find a less expensive property. Other brokers felt that CMHC should be focusing more on its programs for new or self-employed Canadians rather than insuring so many conventional mortgages.

However, the Toronto Star reports that these changes would only impact three percent of the mortgage insurance CMHC provided in 2013 for individual homes. CMHC reported first quarter profits of $406 million, up from $378 million last year. At that time, its insurance in force was $555 billion compared to $557 at the end of 2013.

Meanwhile, Genworth Canada, the nation’s largest private residential mortgage insurer, has advanced 54 percent over the last year. As CMHC scales back, Genworth and Guaranty Canada, the country’s other player in mortgage insurance, may be poised to serve a larger share of the high-ratio mortgage marketplace going forward.

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About Atrina Kouroshnia

Atrina Kouroshnia is an independent, licensed, mortgage broker in the province of British Columbia. She has a degree in Human Relations & Commerce, and past work experiences in HR & Real Estate Development. She comes to the table with great customer service and problem-solving skills. Her approach to finding the best mortgage solution involves both short and long-term planning, making sure her clients are in a suitable mortgage that is flexible to their needs.