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CMHC Adds New Mortgage Rules, Cuts Overall Market Exposure

May 7, 2014
2 mins
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Starting on May 30th, Canada Mortgage and Housing Corporation will discontinue insuring mortgages on second homes and will stop offering mortgage insurance to self-employed people lacking proper third-party income validation.

This means that the CMHC will limit the availability of homeowner mortgage loan insurance to a maximum of one residential property per borrower at any given time. Also, documents such as Notice of Assessment, audited financial statements or unaudited financial statements prepared by an independent third party will have to be supplied for a two year window for self-employed borrowers to be eligible for the government-backed insurance.

This follows the 15 percent price hike on its mortgage insurance rates on May 1, which will result in about $5 more on a typical monthly installment.

Although Genworth Financial and Canada Guaranty, which compete with CMHC on offering insurance against default for any homeowner who can't come up with a down payment of at least 20 percent, followed suit with the rate increase, they will not fully impose the new rules. Genworth owns roughly 30 percent of the mortgage default insurance market, while Canada Guaranty maintains a 10 percent stake, and the lion's share of almost 60 percent belongs to the CMHC.

CMHC said there will not be a material impact on the housing market since Second Home and Self-Employed business represents just under 3 percent of its insurance volume.

The Ottawa-based insurer posted a profit of $1.8 billion for 2013 and also disclosed in its annual report on May 5 that it expects to reduce its insurance in force volume from $557 billion in fiscal 2013 to $545 billion in 2014, a decline of 2.15 percent. In 2012, the CMHC controlled $566 billion worth of mortgage insurance.

The CMHC said it paid out $436 million in claims in 2013, which is 18 percent less than the $532 million in 2012 and way below the $617 million dispensed in 2011. The agency reported that 10,033 Canadians were delinquent on their mortgages as of the end of December - a drop of 700 people from a year earlier.

There continues to be speculation that the CMHC will be privatized in the next few years, a sentiment that's been attributed to the recently departed Finance Minister, Jim Flaherty who wanted to help reduce the amount of exposure taxpayers have to the mortgage market.

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