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CMHC cutting back on what it covers with mortgage default insurance
Canada Mortgage and Housing Corp., the Crown corporation that controls the vast majority of mortgage default insurance in the country, says it plans to get out of the market for second homes and is adding restrictions for self-employed Canadians.
Effective May 30, CMHC said it will discontinue insuring second homes and will require self-employed Canadians to have third party income income validation.
The Crown corporation said the changes are being made as part of its review of its mortgage loan business. The organization has already said it is raising rates across the board May 1, a move that comes after the federal government last year appointed a new chair for CMHC and brought in a new chief executive.
CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system said Steven Mennill, senior vice-president, insurance, in a release. As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.
The agency said its the first set of changes resulting from the review of its operation. TheFinancial Postreported this month that Evan Siddall, a former investment banker brought in as CEO, has been asked about the possibility of a risk-based method of assessing mortgage default insurance. Sources say the new CEO has told people he doesnt disagree with the principal of risk-based insurance.
The changes announced Friday affect a small portion of the market. CMHC said its second home and self-employed without third party income validation business account for less than 3% of CMHCs insured business volumes in units.
Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market, the agency said in a release.
CMHC first introduced the program for self employed people in 2007 in response to industry competition which at its peak saw some U.S. players enter the market and encourage changes that created amortization lengths as long as 40 years. The government has since restricted loans to 25-year amortizations.
The second home product was introduced in 2005 and applied when purchasing an owner-occupied second home anywhere in Canada.
CMHC said it will limit the availability of homeowner mortgage loan insurance to only one property (one to four units) per borrower/co-borrower at any given time.
Benjamin Tal, deputy chief economist with CIBC, said the announcement was not a big surprise given the mandate of providing more stability. That might not be the end of it. We might see more coming from CMHC.
Finn Poschmann, vice-president of research at the C.D. Howe Institute, said the requirement for validation seems reasonable.
What is interesting is the question of whether the change will tend to shift risk away from CMHC and toward the private insurers. Whether that is the outcome will be determined by the private insurers responses, he said, in an email.
Condo living is the new 'norm' from Canadian Real Estate Wealth
More Canadians are embracing condos for long-term accommodation and not just short-term solutions and convenience.
As such, condo living is destined to be the dominant form of housing, particularly in cities, according to a leading industry player.
Existing condos currently account for about 15 per cent of total housing in Toronto, Vancouver and Montreal, and just over 8 per cent nation-wide, according to Royal LePage.Clearly the pendulum has swung towards this style of living, said its CEO, Phil Soper.
Steady immigration into the country and affordability is driving the current demand for condo units and this is a trend that is set to continue. High-rise condos account for about 40 per cent of new-home construction in large cities, a figure that is expected to rise to 51 per cent in the last half of the decade and 54 per cent by the end of the 2020s.
Condo living is appealing to not only the younger generation, but empty nesters are capitalizing on the turn key lifestyle. They can travel easily without the worry of home maintenance and they have the funds to acquire condos with larger spaces, says Erica Smith from Condo Chicks Stomp Realty.
With traffic issues in Toronto, the condo lifestyle is an alternative to long and frustrating commutes. Homes in the city are out of range price wise for the normal couple therefore condos have the edge price wise.
The average size of a unit has now shrunk to about 797 sq. ft, down from 900 sq. ft. over five years ago, according to RealNet Canada Inc.
Let's not breath easy too soon. The devil is in the details that are still to come.
Real estate sector applauds new mortgage rules
By TARA PERKINS
Proposed mortgage insurance guidelines will have minimal impact on housing market, observers say
The real estate industry is breathing a sigh of relief after seeing the long-awaited set of guidelines for mortgage insurers that many had feared would cause home sales to slow.
The new rules from Canadas financial regulator contain little to dampen the housing market, industry players say. That is welcome news to real estate agents and mortgage brokers, as home sales have recently turned sluggish.
The guidelines, which came out Monday, have been in the works since 2012. That was the year that the financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), released mortgage underwriting guidelines for banks.
Those guidelines, which were known in the industry as B-20, were mainly broad principles spelling out what banks must to do to ensure they were properly scrutinizing potential borrowers and the properties they wanted to buy.
But B-20 also imposed a cap on the amount that homeowners can borrow on a home equity line of credit at 65 per cent of the homes value, a rule that real estate players said had a tightening effect on the housing market. As a result, there was concern that the new guidelines for mortgage insurers, known as B-21, might also affect the market.
In an interview Monday, OSFI deputy superintendent Mark Zelmer said he doesnt expect the guidelines to have a major impact, observing that theyre similar to B-20 except that they are written for mortgage insurers rather than banks.
The guidelines spell out steps that mortgage insurers should take to ensure theyre not taking on too much risk, including assessing the banks that are selling the mortgages. Indeed, many of the guidelines essentially tell mortgage insurers they are responsible for ensuring that banks are being careful.
The general idea is to ensure that mortgage insurers are following strict practices that will minimize defaults of mortgages that they insure. As such, the full set of rules could have a tightening effect, but industry players say any such impact will be small.
The market impact of these regulations [B-21] will be modest in comparison to B-20, said Andy Charles, the chief executive of Canada Guaranty, the countrys third-largest mortgage insurer. The impact of B-20 combined with previous changes by the Department of Finance, have resulted in insurers underwriting a much stronger borrower. The new guidelines serve to reinforce some of these practices.
For instance, B-21 tells mortgage insurers that incentives and rebate payments (i.e. cash back from the bank) should not count as part of a down payment. B-20 told banks the same thing.
Mortgage insurance is mandatory for banks and other federally regulated lenders if the home buyer has a down-payment of less than 20 per cent. It compensates the lender if the borrower defaults.
Real estate players are breathing a sigh of relief because the guidelines come as home sales have levelled off.
The Canadian Real Estate Association will release March data on Tuesday, and Bank of Montreal chief economist Douglas Porter is expecting home sales to come in 3 per cent higher than a year earlier.
If thats the case, sales will be only slightly above Februarys level, having ticked up for two months in a row after sliding for five consecutive months. That would suggest a relatively lacklustre start to the all-important spring market. It would put Marchs sales level about 10 per cent below March of 2012, Mr. Porter says.
Last month, marked the first March with the exception of the recession of 2009 that home prices basically didnt budge from February, according to data released by the Teranet-National Bank house price index on Monday.
OSFI is taking comments on the guidelines until May 23, after which it will release final rules.