CMHC and Genworth Mortgage Rules Update – How does it Impact Your Home Buying
Last week, CMHC introduced a number of new rules aimed at tightening mortgage insurance eligibility for homeowners effective July 1, 2020.
CMHC made three changes to their underwriting policy:
- New applicants will require a Gross/ Total Debt Servicing ratio of 35/ 42. (The GDS ratio measures percentage of income to pay off all monthly housing costs. The TDS ratio includes all of this, plus other debt obligations, as a percentage of income).
- At least one borrower on the mortgage must establish a minimum score of 680
- You cannot borrow any of the down payment or closing costs, all down payment must be saved, gifted funds from family is still acceptable.
The new rules, which include raising the minimum credit score to 680 from the current 600 for at least one borrower and reducing the maximum gross debt service ratio, are aimed at protecting new buyers and taxpayers in the event of a market correction, while also curtailing excessive demand.
This seems to be in response to a statement last month by CMHC saying that Canadian home prices could fall by as much as 9-18% this year with recovery not expected until the end of 2022 if Canada’s economy doesn’t fully recover from the economic shock brought forth by COVID-19.
However, as per Toronto Region Real Estate Board Report (TRREB), GTA home prices actually rose 3% year over year, up 4.6% over April.
CMHC’s decision to tighten mortgage insurance rules has been criticized by some economists, who see the new eligibility requirements as “poorly timed” given that Canada remains in a period of economic need due to COVID-19.
Genworth’s Stand on the issue
Canadian private mortgage insurer Genworth MI Canada Inc. said Monday the company has no plans to tighten qualification rules for its borrowers, as opposed to the decision made last week by Canada Mortgage and Housing Corporation (CMHC).
Genworth said in a statement the company doesn’t plan to change any debt service ratio limits, minimum credit score and down payment requirements for homeowners looking to insure a mortgage with the firm.
“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure, including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios,” said Stuart Levings, chief executive officer at Genworth, in a statement.
Genworth Does Not Plan to Change Its Underwriting Policy
The Oakville, Ontario based company said Monday that its insurance subsidiary Genworth MI Canada Inc. is holding steady on its credit score qualifications, despite a move by CMHC to toughen mortgage lending standards. Genworth MI Canada Inc. confirmed in a press release
on June 8th, 2020 that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements.
Genworth has said that it does not plan to change any debt limits, minimum credit score and down payment requirements for homeowners looking to insure a mortgage with the firm.
Reactions to CMHC’s Decision to Tighten Mortgage Rules
Watch the video below where Robert P. Kelly, former CMHC chair and former CEO of BNY Mellon joins BNN Bloomberg to weigh in on the CMHC’s decision to tighten mortgage rules, and provide his outlook for Canadian housing prices and the economy as we get through the COVID-19 pandemic.
CMHC and Genworth Mortgage Rules Update & Your Home Buying
How does CMHC Rules impact Home Buyers
CMHC has raised the qualifications for insured mortgages which will make it tougher for home buyers to get a foot on the property ladder. The changes are designed to protect itself from financial risk and save consumers from being over in debt. Concerns have been cited that as many as 20% of homeowners could be in mortgage deferrals by Fall. If unemployment remains high, some of those mortgages could go into arrears and, ultimately, foreclosure.
Direct Impact on You as a Home Buyer
In simple words it means that home buyers paying less than 20% down payment will have to settle for properties which approx. 10% lower than what their earlier approval had come in before the new rules.
In other words, new rules mean that either the buyer has to put down 10% more or lower his property value by 10% approx.
The new CMHC rules
will make it even harder for first time buyers to get approved for higher value homes post Jul 1. Since more buyers will qualify for lesser value properties (higher demand), the price of lower value properties can surge very fast. In our opinion, a person who buys a property for less than $600k (an example) can see a minimum 10% value increase ($60K or more) within the next 10 months.
It can be a good opportunity to buy something before July 1, if you are going with CMHC insured mortgage. However, if going with a private mortgage insurer like Genworth, you will not be impacted by the CMHC guidelines.
Generally, at the pace that home prices are increasing, buying anything that is good and reasonable can be a good idea to grow equity rather than waiting for an ideal property, or for the market to settle.
Otherwise, chances are that property values may exceed one’s current approval amount whether with CMHC insured mortgage or private insurers like Genworth. Our experience tells us that there is never a 100% match when it comes to buying. If a property is well-kept, well-priced and it has a healthy reserve fund (in case of a condo), you should not delay putting an offer.
We are actively conducting over-the-phone consultation sessions with first time buyers. So if you are looking to buy in the current market, we are just a phone call away. You can reach us at 905-339-5111.