CMHC changes underwriting practices on mortgage loan insurance

OTTAWA — Canada Mortgage and Housing Corp. says it is bringing back last summer’s underwriting practices for mortgage loan insurance because some changes it made were not effective and caused it to lose market share.

The federal housing agency says that as of today it has returned to considering a gross debt service ratio of up to 39 per cent and a total debt service ratio of up to 44 per cent for borrowers who have a strong history of managing payment obligations.

Gross debt service refers to the maximum amount of gross annual income that can be used for home-related expenses like mortgages, heat or condo fees, while total debt service is calculated when these expenses are combined with monthly debt payments owed on items such as credit cards or cars.

The agency says it will also now request at least one borrower or guarantor seeking insurance have a credit score that is greater than or equal to 600.

Last July, CMHC required a minimum credit score of at least 680 and limited the gross and total debt servicing ratios to 35 and 42 per cent respectively, which it expected to decrease purchasing power by up to 11 per cent.

Those moves were meant to protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable price growth during the COVID-19 pandemic.

However, CMHC now says the changes were not as effective as it anticipated and it experienced a decline in market share, prompting it to revert to pre-pandemic policies.

This report by The Canadian Press was first published July 5, 2021

The Canadian Press