CMHC may raise mortgage insurance limit

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The Canada Mortgage and Housing Corporation recently revealed it's nearing the limit on mortgage insurance it can offer lenders, and one economic expert says Canada's federal housing agency may raise the $600 billion cap.

According to a Bloomberg report, Sheryl King, head of Canada economics at Bank of America, said the CMHC may be forced to increase its mortgage insurance limit by 25 percent to $750 billion. The CMHC recently said it has received an unexpected level of requests for portfolio insurance, most likely the result of a boost in housing demand after several banks reduced their mortgage rates to all-time lows.

King told the source a limit increase could be implemented in April or May, while a minimal extension "would likely signal the government is trying to prevent the housing market from roaring at the pace we've seen since 2009 or at least trying to force the risk back onto the private sector." Continue reading

Genworth MI Canada not near legislated cap

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Genworth MI Canada, the largest private mortgage insurer in Canada, recently announced that its business has plenty of remaining capacity and is not planning to push up against its legislated cap, according to the Wall Street Journal.

However, Canada Mortgage and Housing Corporation, a quasi-government agency, reported earlier this week that it is close to its near C$600 billion lending limit with the Canadian government guaranteeing 100 percent of the agency's obligations and 90 percent of the obligations of the private sector, the news source states.

Meanwhile, Genworth is calling for a flat home price appreciation in the country over the next year to year and a half.

"We see a soft landing, which bodes well for the long-term health (of the housing market)," Stuart Levings, chief risk officer at Genworth, told the news source. Continue reading

CMHC nearing limit for mortgage insurance it offers banks

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Several Canadian lenders recently reduced their mortgage rates to historic lows, causing a spike in demand for housing and home loan insurance. In response, the Canada Mortgage and Housing Corporation revealed it's approaching the limit on mortgage insurance it can offer banks.

"CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance. To ensure equitable access to portfolio insurance within CMHC's annual limits, an allocation process is being established which has caused some delays," the federal agency said in a statement. Continue reading

Economic conditions could force changes to mortgages rules

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Rising household debt, limited consumer demand and European economic instability could impact Canada's housing market this year, and some experts believe the Canadian government could again tighten mortgage regulations.

Speaking at the recent Economic Club of Canada, an annual panel discussion including several experts, TD Bank economist Craig Alexander said overvalued housing and high consumer debt levels could force the federal government to change mortgage rules.

"If we see the housing market surprise on the upside and debt growth surprise on the upside, then the government will likely take action to further tighten mortgage insurance rules," Alexander said, according to the Huffington Post. Continue reading

Expert: Mortgage insurance system may need overhaul

Record-high household debt and global economic uncertainty could severely slow economic growth in 2012, and some experts believe Canada's government should make certain changes to improve the country's mortgage loan system.

In a column for the National Post, expert Jesse Kline analyzes the International Monetary Fund's recent report on the Canadian economy, which called for a review of rules and regulations imposed by the Canadian Mortgage and Housing Corporation.

According to Kline, the CMHC manages about 70 percent of the mortgage insurance market, as loans with a down payment of 20 percent or that are changed to mortgage-backed securities that are required to have insurance. Kline says the government backs 100 percent of the interest and principal on CMHC-insured loans, and because the current system favors the government, the CMHC has increasingly taken on more risk. Continue reading

Expert: Raising down payments would reduce mortgage risk

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According to a recent article in The Globe and Mail, author Ted Rechtshaffen discussed one method for reducing mortgage risks – increasing down payment requirements from 5 to 10 percent.

Currently, banks are insured by the Canada Mortgage and Housing Corporation for mortgage loans they issue with 5 percent down, which offers protection if the borrower defaults; however, requiring only 5 percent down also allows for a greater number of borrowers to qualify for loans. Thus, a greater number of potential at-risk borrowers exist.

“A large percentage of these homebuyers are not yet in a financial position to become a home owner. Why should we encourage and support people taking on debt levels many times greater than their annual income,” states Rechtshaffen.

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Mortgages for second homes may be tougher to get

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Whether for an investment, a rental property or a vacation home, many Canadians may look to purchase a second home at some point. But as the Ottawa Citizen reports, it’s becoming more difficult to get a mortgage for those kind of properties.

Because a second home isn’t generally a buyer’s primary residence, it can be tougher to get mortgage insurance through the Canada Mortgage and Housing Corporation without a larger down payment.

Experts also told the Citizen that the paperwork for a mortgage on a second property can be more extensive, with lenders looking for T4s and other documentation.

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A few things to consider when looking to buy

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The low Canadian mortgage rates currently available at many mortgage brokers may be motivating many people to start looking at homes. However, DIY Money contributor Allison Griffiths has some things buyers should be sure to budget for before signing.

One of the major things people should consider is any additional mortgage costs they may have to face. Every mortgage comes with closing costs for things such as an appraisal, legal fees or added products like title insurance. Also, buyers will likely need to pay for mortgage insurance if they’re not going to put 20 percent down.

People should also account for any repair or replacement costs they may have to take care of in their new home. While a new coat of paint or a set of curtains likely won’t be enough to stop someone from buying a home, it’s still something to budget for.

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New mortgage rules take effect today

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Tighter mortgage regulations designed to pare back the current levels of household debt across Canada take effect today, meaning those looking for Canadian mortgages likely won’t have the option of a 35-year amortization.

The Canada Mortgage and Housing Corporation will no longer provide mortgage insurance for loans with a 35-year term, which could affect many first-time buyers. It also comes just a few years after the government cut off 40-year amortizations.

The changes also affect refinancing. Borrowers can now only borrow 85 percent of their home’s value through refinancing, instead of the previous limit of 90 percent.

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Report: Housing demand to slow

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Due to the impact of tighter mortgage regulations and the potential for higher interest rates, TD Economics says that demand for residential home loans in Canada should cool throughout the latter part of the year.

The Bank of Canada has maintained its low target interest rate for several months while the economy continues to grow, leading economists to predict rates will eventually be hiked.

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