CMHC Reviews Underwriting Criteria: Here’s What You Can Expect

COVID-19 and Underwriting correlation explained: As the COVID-19 pandemic is adversely affecting businesses and the economy around the globe as well as in the country, the housing sector is also being affected adversely. Hence the Canada Mortgage and Housing Corporation has reviewed the Underwriting Criteria.

What is underwriting? Underwriting is when a party or an individual undertakes another's financial risk for a fee. This risk mostly involves mortgages, insurance, investments, equity markets et al. As businesses are closing down and job cuts are rampant across sectors, the rate of immigration has witnessed a drastic dip, and the housing market has been adversely impacted as well. 

The Canada Mortgage and Housing Corporation, in fact, foresees a whopping 9 to 18% decline in the housing prices over the next one year. The CMHC is thus underwriting policies for insured mortgages to safeguard the interests of those looking to buy a home in the future and to work towards reducing the risks involved. 

From July 1, 2020, some changes will be applicable to portfolio mortgage insurance and homeowner transactional. These changes will be as follows:  

• Gross/Total Debt Servicing (GDS/TDS) ratios will be limited to the standard requirements of 35/42;

• Laying down of 680 as the minimum credit score for at least one of the borrowers;

• Discontinuing to treat non-traditional sources of down payment as equity for insurance as they increase indebtedness;

Further, the CMHC has also discontinued, for the time being, the refinancing for multi-unit mortgage insurance to manage risk to insurance business effectively during this time of uncertainty and despair. However, there will be an exception towards funds being used for repair related work or reinvestment in housing. In fact, discussions and consultations are currently underway to reposition the multi-unit mortgage insurance products.

Evan Siddall, CMHC’s President and CEO has addressed the situation by saying, "COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians." He further added that “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."

Future house owners must, however, duly note that all the above said decisions are well within CMHC’s authorities guided by the National Housing Act. Furthermore, these have been made anticipating the upcoming house price adjustment. Canada Mortgage and Housing Corporation will keep a tab on the situation and study the market conditions closely along with their federal colleagues on probable macro-prudential policy options.

The CMHC remains committed to supporting the housing sector as well as its financial stability by extending its continued support to those Canadians who are in the need of housing currently or will be looking at buying houses in the near future. The CMHC will also continue to offer housing research and advice to the Canadian government at all levels, as well as to the consumers and those belonging to the housing industry.