CMHC is changing its underwriting policies for insured mortgages.
the following will apply to insured mortgages (those with less than 20% down payment) as of July 1, 2020:
- Maximum Gross Debt Service (GDS) ratios will be lowered to 35% (from 39%)
- Maximum Total Debt Service (TDS) ratios will be lowered to 42% (from 44%)
- The minimum credit score needed to qualify will rise to 680 (from 600) for at least one household borrower
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
Genworth and Canada Guaranty Won’t Adopt CMHC’s New Mortgage Rules
Genworth Canada President and CEO Stuart Levings said the company’s current underwriting policies for insured mortgages already allow it to “prudently” manage its risk exposure.
“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,” Levings noted, “including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios.”
Similarly, Canada Guaranty said it has been well-served by its existing underwriting criteria over the years and sees no need to make adjustments now.
“Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns,” Mary Putnam, VP, Sales and Marketing of Canada Guaranty, said in a release, adding this has resulted in the lowest loss ratio in the industry.
“Recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas,” she said. “Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”
Observers saw the announcements as a positive for borrowers who will continue to have some options in the markets should they not be able to meet CMHC’s stricter qualification standards.