Mortgage insurance rule changes…how will they affect you?

New mortgage insurance rules.

In October and November this year the Government of Canada made changes to mortgage insurance requirements. Mortgage insurance is provided by three companies in Canada. The biggest provider of mortgage insurance is CMHC a crown corporation. This insurance is paid for by the borrower and protects the lender in case of default. It reduces the lenders risk therefore enabling consumers to purchase homes with as little as 5% down.
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Happy Home Hunting Tips for Canadians

Home hunting tips

Finding the right home for you and your loved ones really comes down to three chief factors:

  1. Affordability: Does the home fit into your budget? Have you determined the financing you can qualify for through a mortgage pre-approval? Have you factored in mortgage insurance, utilities and heating expenses, association fees and taxes?
  2. Lifestyle: Is the home located in an area within the proximity of the amenities you and your family require? Is the lot large enough for your pet(s)? Will owning this home impede you from doing the things you love doing? Are you close enough to work, family and friends?
  3. Future Needs: Are kids a possibility in the future? Is the home large enough for a family? Is the basement developed? Are there schools nearby? Or, if you are close to retirement, is the home too large? Are there too many stairs and floors in the home to negotiate?

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Understanding mortgage insurance

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When it comes to home loans, there's plenty of talk about mortgage rates, but far less about mortgage insurance. While not as exciting as fluctuating interest points, mortgage insurance is still a vital part of the homebuying process for most Canadians. It's with this in mind that prospective homeowners should do all they can to understand what mortgage insurance is and how it works.

What is mortgage insurance?
Typically, if a homebuyer takes out a mortgage loan with less than a 20 percent down payment, mortgage insurance is required. This insurance protects lenders in case a borrower is incapable of making mortgage payments and defaults on a loan. It's important to remember that this coverage is only for lenders, not homeowners. In most cases, if a homebuyer is able to pay a minimum of 20 percent on a down payment, mortgage insurance is not required. Continue reading

Privatization comments spark debate

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Canadian Finance Minister Jim Flaherty can be a pretty divisive figure in certain circles, especially when it comes to Canada’s housing market. Flaherty made no bones about taking action when he suspected the market was unhealthy, leading him to tighten restrictions on mortgage insurance on four separate occasions. Some analysts saw this as a way to prevent a housing bubble in the Canadian market, part of a plan to cool things down in hopes of avoiding economic collapse like in the United States and Spain. Others, including industry professionals, saw it as interfering with a booming uptick in home sales and construction, neutering lenders, babying borrowers and restricting citizens from getting the mortgages they needed to buy homes.

No matter how you feel about the man and his policies, one thing is certain: The name Jim Flaherty has gotten just as much ink as interest rates when it comes to coverage of Canada’s housing market.

Well, Flaherty is in the news once again, riling up opponents and supporters alike with his views, only this time he’s calling for less government intervention. You’d be forgiven for wondering who this man is and what he’s done with the real Jim Flaherty. Continue reading

Mortgage restrictions cool down market, leave buyers in a pickle

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Much like the rising and setting of the sun, some things in life are just givens – death, taxes, bad reality TV shows.

Well, now you can add insurance to the list.

Just as most Canadians must shell out money for insurance to drive a car, the majority of Canadians must spring for insurance to buy a home. For homebuyers with less than 20 percent equity, paying for mortgage insurance is mandatory.

According to the Canadian Real Estate Association (CREA), the average home price in Canada is $350,192. That means that putting down 20 percent would run the average citizen $70,038 – a hefty chunk of change that most buyers can’t afford out of pocket.

Fewer than four in 10 buyers can afford a 20 percent down payment, according to the Canadian Association of Accredited Mortgage Professionals. Continue reading

Changes to CMHC unlikely to affect borrowers during housing boom

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Further changes may be in store for the Canadian Mortgage and Housing Corporation. Finance Minister Jim Flaherty announced his plans to reporters in New York recently.

In the coming months and years, CMHC will be subject to stricter reporting standards, particularly when it comes to securitization, Flaherty said at a tax conference hosted by the George W. Bush Institute. He went on to note that home prices in Canada have become over-inflated at the same time Canadians are piling on more mortgage debt. Despite the trend, Flaherty said he has no intention of intervening in the housing market, preferring instead to let the market correct itself.

Even before the New York conference, Flaherty had made some significant moves affecting the CMHC in the federal budget. The organization, which provides mortgage insurance to lenders, will see its liability cap remain at $600 billion. The cap had been raised a number of times in recent years as Canadians took increasing advantage of historically low mortgage rates. Though Flaherty and other Ottawa officials have been reluctant to impose any stringent restrictions on borrowing to slow Canada's housing boom, keeping the CMHC cap could have the effect of slowing lending as banks and other institutions find themselves without a safety net. Continue reading

New budget: Change for banks, no change for consumers and less change in pockets

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The new federal budget from Ottawa contains a mixed bag of mortgage news. Consumers will see little change in the way they secure and pay for mortgages, but some banks and lenders may have adjustments to make in the way they do business.

The government in its budget announced the Canadian Mortgage and Housing Corporation, the federally backed institution that provides 75 percent of mortgage insurance to lenders across the country, will soon fall under the authority of the Office of the Superintendent of Financial Institutions. Though details about the new oversight were scarce, experts suggest Ottawa would like to reign in some of the insurance practices CMHC currently engages in.

When homebuyers take out a mortgage through a large bank with less than 20 percent equity, lenders are required to secure mortgage-default insurance, often from CMHC. Many banks, however, have been seeking insurance for less risky homes in order to securitize those bulk mortgages and avoid paying costly insurance charges, according to an analysis in the Financial Post. This practice has driven CMHC close to its federally mandated cap of $600 billion, a cap Ottawa has said it will not raise. Continue reading

Canadian mortgage insurance firm to limit growth, slow housing market

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All good things must come to an end, the saying goes, and Canada's super-charged housing boom may be next on the block. The Canadian Mortgage and Housing Corporation has indicated it will lessen its involvement in the housing market over the next few years as it approaches a federally mandated mortgage insurance limit.

By law, CMHC is allowed to insure up to $600 billion in mortgages, a cap that has been raised three times in the last five years as the housing market accelerated, the Globe and Mail reports. As the agency prepares to cross the $500 billion threshold this year, it has begun making plans to slow down the rate of new mortgages insured, effectively limiting the amount of credit available to borrowers and dampening the overall market.

CMHC projects it will grow by $30.8 billion between 2011 and 2014, reaching overall levels of $587.7 billion by 2016, according to the Globe and Mail. This marks a significant slowdown from the $170 billion in growth the agency experienced between 2007 and 2010. Continue reading

Transparency would limit risk in Canadian residential mortgage market

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As low mortgage rates and high personal debt converge in Canada, financial regulators are looking for ways to head off a housing bubble that could send the country into an American-style recession.

The Office of the Superintendent of Financial Institutions on March 19 unveiled new guidelines it hopes will bring some transparency to the mortgage market and help protect borrowers and lenders alike. Under the proposed guidelines, which are currently open for comment by banks, mortgage broker firms and other industry parties, financial institutions would be required to disclose their percentage of insured residential mortgage loans versus uninsured loans, as well as set limits on the amount of risk they are exposed to in the residential mortgage market, according to a Reuters analysis. Continue reading

Genworth looking to profit from CMHC limit

Genworth MI Canada, the nation's second largest mortgage insurer, recently announced plans to take advantage of government constraints on the Canada Mortgage and Housing Corporation, its Crown corporation rival.

According to The Globe and Mail, executives at the mortgage insurer have made it clear they view the situation as a new business opportunity, as Ottawa mulls loosening restrictions on the CMHC.

“Given economic conditions and concerns around personal leverage/housing in Canada, we would be surprised to see the government increase CMHC’s limit in the near term,” Jason Bilodeau, analyst at TD Securities, recently wrote in a note to clients. Continue reading