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How Are You Adapting to The New CMHC Mortgage Rules?
The COVID-19 pandemic has impacted multiple sectors and the financial industry is no different.
As you know high unemployment, business closures, and the general slowdown in economic activity, had led the Government of Canada to put several monetary and fiscal measures in place. This had been done to help the economy recover and protect the interests of various stakeholders.
This month, The Bank of Canada confirmed that it was holding the interest rate at the effective lower bound to reduce the economic slack.
In its press release, The Bank also presented a scenario to show when the economy could begin to recover. The Bank anticipates economic growth to resume in 2021 with a 5.1% GDP increase.
Mortgage Rules and The Housing Market
Canada Mortgage and Housing Corporation (CMHC) confirmed earlier this year that it is tightening its underwriting policies for insured mortgages to protect future home buyers and reduce risk.
As you know, CMHC made the following changes:
- Reduced the allowable GDS/TDS ratios (35%/42%).
- Increased the minimum required credit score (680).
- Non-traditional sources of down payment will not be treated as equity for insurance purposes.
Evan Siddall, CMHC’s President and CEO, pointed out that the COVID-19 pandemic exposed the long-standing vulnerabilities in Canada’s financial markets.
He reiterated that CMHC has taken these steps to protect home buyers, reduce government and taxpayer risk, and support the stability of the Canadian housing market.
However, some stakeholders in the mortgage industry are questioning if the timing of this change is right.
Data from the Teranet–National Bank National Composite House Price IndexTM shows that COVID-19 has resulted in a slowdown in the housing market.
In June 2020, the index was up by 0.7% from the month before. However, this rise was half the average for June over the previous 10 years and the lowest June advance in 17 years. If the index were corrected for seasonal pressures, it would actually show a decline of 0.1%.
What Does This Mean for You?
Well, this really depends on the borrowers you’re serving.
The CMHC measures aim to make it more difficult for riskier borrowers to qualify. For instance, first-time buyers will most likely be impacted by these new requirements.
So, if you serve a customer base that is more likely to be affected by these changes, you will have to consider what knowledge you can gain, look into building new relationships, and put measures in place that can help you stay agile in this evolving situation.
How Can You Adapt?
There are a few ways to prepare yourself. These include:
i. Establish relationships with non-CMHC insured lenders:
COVID-19 has bruised credit for many individuals. If you want to be competitive, in a Post COVID-19 world, you will need to look into B lending options as well.
How do you find these relationships?
Co-brokering is a great way to access funds that are not publicly marketed or are available through private sources. You can also speak to your principal broker. They can help provide you the financial resources you probably weren’t aware of.
The key is research.
Study about the lending guidelines of trust companies, credit unions, and private lenders. This will help you access the information that will help you adapt and continue to serve your customers.
ii. Provide counsel to your customers:
Your prospects who have bruised credit may be looking for financial guidance.
A prospect who doesn’t qualify today, because of recent late payments, might only be a few months away from bouncing back. In times like these, it is essential to provide guidance to your customers to help them get there. This not only helps them improve their credit score but also helps you build a stronger relationship with them (a relationship that is based on trust).
iii. Don’t miss out on opportunities:
Consumers often don’t even know what their homes are worth or what their mortgage balances are.
Pulling information from an Automated Valuation Model (AVM) can point out if there is more equity available than you or the borrower initially thought. More equity means more available LTV and more financial options for the client.
To stay informed about the changes in the mortgage industry and get insights on solutions that can help you remain competitive in a fast-changing environment, call 1-855-787-8439 or visit www.purview.ca.« Back to Blog