Some Fixes to Recent Mortgage Insurance Rule Changes
As you are aware, on October 3rd, Finance Minister Morneau announced a tightening of rules on mortgage insurance.
CHBA is concerned that these new rules go too far, and will harm markets that are already challenged while doing little to address the ongoing supply pressures evident in stronger markets. We are also concerned that these changes will disproportionately affect first-time homebuyers working hard to achieve home ownership.
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.
In the short-term, after reviewing the changes carefully, CHBA informed the government that some details included in the October 3rd rule changes were flawed. We have been actively pushing the Department of Finance to address these flaws quickly. Specifically, some elements of the new rules were creating uncertainty for builders, and buyers, with signed deals for homes to be delivered many months or years in the future.
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 on the Department of Finance website.
We want to make sure you are aware of these latest changes. Please review the Department’s Technical Backgrounder for complete details.
A quick summary of key changes made on Friday 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. This exemption does not have an end-date, so any purchase agreements in place prior to October 17th are protected from the new rules.
- Homeowners with an existing high-ratio insured mortgage, including those renewing or transferring their mortgage to another lender, are now not affected by the new rules, as high-ratio mortgage insurance spans the life of the mortgage. They will be qualified under the ‘old’ rules.
- For low-ratio mortgages where the lender (not the borrower) seeks portfolio insurance, the new rules now exempt mortgages where there was a legally binding agreement of purchase and sale in place prior to October 17th, for the property against which the loan is secured. So these home buyers should not be affected by the new rules, including stress testing.
- 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 (the deal closes) before May 1, 2017.
It is good that the Department recognized the specific flaws in the rules announced October 3rd, as pointed out by CHBA, and has taken action to correct them.
Longer-term, these changes do not address the larger underlying challenges that these new rules will cause—locking even 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.