CMHC and Genworth Mortgage Rules Update June 2020
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.
- 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
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
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.