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CMHC stops offering mortgage insurance to condo developers

Posted on Jun 16, 2014 in Mortgage Market Updates and News

Andrea Hopkins, Reuters
Financial Post

TORONTO — Canada’s federal housing agency will no longer offer mortgage insurance for condo construction, it said on Friday as it made further changes to its programs with the aim of cutting risks amid the country’s housing boom.

Canada Mortgage and Housing Corp (CMHC) also said it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20% or more.

It’s a step further than rules introduced two years ago when then finance minister Jim Flaherty announced that CMHC would stop insuring mortgages on homes worth $1 million or more if the buyer borrowed more than 80% of the value.

The Crown corporation says the changes announced Friday would have affected only about 3% of the mortgage insurance it provided last year for individual homes.

The changes are the latest made by the federal government and its agencies to tighten mortgage lending and mortgage insurance rules to make it harder for homebuyers, builders and developers to take on too much housing-related debt.

The changes are designed to increase market discipline in residential lending while reducing taxpayers’ exposure

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” the agency said in a statement.

“They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance.”

The shift is not expected to have a material impact on the mortgage market, said Geoffrey Kwan, a banking analyst at RBC Dominion Securities.

CMHC introduced its multi-unit condo construction mortgage insurance in 2010 to help developers get financing as they built their projects, but the agency said it has not provided any such insurance since 2011. Its total outstanding insurance-in-force for condominium construction was about $378 million as of March 31, a fraction of the agency’s total $557 billion insurance in force in 2013.

On the second change, CMHC said low-ratio insurance that falls outside the revised parameters accounted for about 3% of its total homeowner business volumes in 2013, and thus should not have much of an impact on the market. Mortgage insurance is not required when borrowers have a down payment of 20% or more, but lenders often buy insurance on low-ratio loans anyway as part of the approval process.

Under the changes, the low-ratio insurance product will be aligned with CMHC’s high-ratio product, with the maximum house purchase price of $1 million, the amortization period capped at 25 years, and the total debt service ratio limited to 44%, effective July 31.

Insurers who compete with CMHC include Genworth MI Canada and privately owned Canada Guaranty Mortgage Insurance Co.

© Thomson Reuters 2014, with files from the Canadian Press


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