Canada’s state-owned mortgage insurer will be loosening mortgage insurance standards. The Canada Mortgage and Housing Corporation (CMHC) announced they’ll reverse some pandemic measures. They tightened the borrower criteria for insurance at the beginning of the outbreak. Unfortunately, it did little but lost the agency market share. Their competition was more than happy to pick up anyone they rejected. Now the agency is reversing the tightened standards, hoping to recoup business.
CMHC Tightened Credit To Prevent Government-Assisted Exposure To Volatile Markets
The CMHC CEO did something unconventional at the beginning of the pandemic — he looked out for borrowers. Even though their client is the lender, not the borrower, the agency felt a moral obligation. After all, how can a government-owned agency facilitate moral hazard during a pandemic? They wanted borrowers to undergo tougher qualifications. The idea was to make sure only those really prepared for ownership would take the jump at this time.
The criteria became slightly more difficult to get mortgage insurance from the CMHC. Higher credit scores, reduced leverage, and borrowed down payments didn’t count as equity. Nothing over the top. Just prudential underwriting you would have expected from Canada in the 90s.
Fewer People Didn’t Buy, The CMHC Just Lost Market Share
The CMHC isn’t the only mortgage insurer in town though. Other private mortgage insurers didn’t follow the lead of the CMHC. They saw an opportunity to take their market share. The agency’s issuance of new mortgage insurance was cut in half, less than a year later. They slipped from the largest issuer to watching their peers win their share of the market.
CMHC Reversing Tightening of Mortage Insurance
Siddall’s term is now up, and Romy Bowers is now the CEO of the organization. She must see a lot less risk now that home prices have increased over 20%, because she’s reversing the prudential underwriting. Debt ratios are increased, minimum credit scores are lowered, and quality checks… well, they’ll consider “alternative methods of establishing credit worthiness.”
You may not be able to finance a Civic in Canada, but soon you can buy a home in the world’s most bubbly markets. Complete with the endorsement of the country’s state-owned insurer.
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