Ottawa, July 5, 2021
In July 2020, in response to the economic uncertainty driven by the COVID-19 pandemic, CMHC unilaterally implemented temporary changes to its underwriting practices for mortgage loan insurance. It believed, at that time, these changes would protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable price growth. However, it now realizes that such measures have not produced results it had desired.
Hence, effective July 5, 2021, CMHC is returning to its pre-July 2020 underwriting practices for homeowner mortgage loan insurance, specifically:
- CMHC will consider a Gross Debt Service (GDS) ratio up to 39% and Total Debt Service (TDS) ratio up to 44% for borrowers who have a strong history of managing their payment obligations.
- At least one borrower (or guarantor) must have a credit score that is greater than or equal to 600 at the time of the request for insurance.
- As always, CMHC will consider the overall strength of the mortgage loan insurance application, including alternative methods of establishing creditworthiness for borrowers without a credit history.
However, CMHC says, it will continue to apply rigorous underwriting principles to the business that it does to ensure potential homebuyers can meet their financial obligations.
CMHC is compelled to take this action because the July 2020 underwriting changes were not as effective as it had anticipated and it incurred the cost of a decline in its market share.
CMHC says it will continue to be vigilant in its underwriting practices as high levels of indebtedness can negatively affect economic growth and put the financial system at risk while working with its federal partners to ensure appropriate macro-prudential policies are in place. (Canada Mortgage and Housing Corporation)