Some Fixes to Recent Mortgage Insurance Rule Changes
From: Kevin Lee, CEO, CHBA National
CHBA’s position is that the recent tightening of mortgage insurance rules announced by Minister Morneau on October 3rd go too far, and will adversely impact markets that are already challenged, and first-time homebuyers working hard to achieve home ownership. In both cases, according to many commentators, this has the potential to increase risks to market stability and further dampen economic recovery.
Going forward we will continue to press the government to ‘rethink’ their approach and recognize the need for a more constructive approach to addressing lender and insurer risks.
At the same time, the specific rule changes announced on October 3rd were themselves flawed in a number of ways, and CHBA has been actively pushing the Department of Finance to address these flaws. Late on Friday, October 14th, we were informed that a number of our recommended changes were being made, and an updated Technical Backgrounder reflecting these changes is now available of the Department's website.
These changes address some elements of the new rules that were creating uncertainty for builders, and buyers, with signed deals for homes to be delivered many months or years in the future. The key changes included in this document are as follows:
• The effective date for high-ratio mortgages has been move from October 3rd to October 17th. This means that any home buyer who signed a purchase agreement prior to October 17th will be subject to the previous rules, where a stress test is not required if the buyer opts for a five-year, fixed-rate mortgage. In such cases, the actual contracted mortgage rate would be used for the stress test, as had been the case prior to the Minister’s announcement.
• Homeowners with an existing high-ratio insured mortgage, including those renewing or transferring an existing high-ratio insured mortgage to another lender, are not affected by this change as high-ratio mortgage insurance spans the life of the mortgage.
• For low-ratio mortgages where the lender seeks portfolio insurance, the new rules now also exempt borrowers who entered into a legally binding agreement of purchase and sale, prior to October 17th, for the property against which the loan is secured. The previous rules apply in these cases.
• There is also a similar exemption where a mortgage insurance application was received; or, the lender made the loan or made a legally binding commitment to make the loan; or, the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured during the period beginning on October 17, 2016 and ending on November 29, 2016, provided that the loan is funded before May 1, 2017.
It is good that the Department recognized at least these specific flaws as pointed out by CHBA and has taken action to correct them.
However, these changes do not address the larger underlying challenges that these new rules will cause—locking ever more first-time buyers out of home ownership and potentially destabilizing impacts in many housing markets across Canada. CHBA continues to engage the government accordingly.