Canada’s housing market hadn’t seen much change from its governing bodies, until 2008. Here are the major rule changes, policy updates, and regulations put in by each governing body.
CHMC announces mortgages with amortizations up to 40 years can be insured, as well as zero-down payment mortgages.
CHMC announces mortgages for self-employed borrowers will be insured.
The Department of Finance raises the aggregate amount of insurance that CMHC can have outstanding to $450 billion from $350 billion.
The maximum amortization period is shortened from 40 years to 35 years.
The requirements for a 5% minimum down payment is established.
New minimum documentation requirements are introduced. Lenders are required to ensure sufficient evidence of a property’s value and the borrower’s sources and level of income.
The new rules establish a credit score floor of 620, but allow for some limited exceptions.
The maximum amount for insured refinancing is reduced to 90% from 95%.
Variable and fixed rate mortgages with terms less than 5 years are required to be qualified using the 5-year posted rate/qualifying rate.
A 20% down payment is implemented for small rental properties.
The maximum amount for insured refinances is reduced to 85% from 90%.
The maximum amortization period is shortened to 30 years from 35 years on insured mortgages.
Home Equity Lines of Credit (HELOCs) no longer qualify for government mortgage insurance.
The maximum amount for insured refinances is reduced to 80% from 85%.
The government announces mortgages of more than $1 million are no longer eligible to be default-insured.
The maximum amortization period is shortened to 25 years from 30 years on insured mortgages.
New gross debt service (GDS) and total debt service (TDS) limits of 39% and 44%, respectively, are implemented for borrowers with a credit score of 680+.
CMHC announces changes to its securitization programs (NHA-MBS and Canada Mortgage Bond):
The government announces that for homes priced above $500,000, a 10% down payment is required for the portion of the mortgage above the half-million mark.
OSFI releases proposed changes to its regulatory capital requirements for mortgages. The new requirements introduce risk-sensitive floors on capital for mortgages and apply to new originations, renewals and refinances.
OSFI releases its draft advisory regarding revised capital requirements for mortgage insurers, which came into effect on January 1, 2017. The new requirements increased the amount of capital required to be held by mortgage insurers due to more drivers involved in the required capital formula. Some of the key determinants of the new capital requirements are:
All high-ratio insured mortgages must now be stress tested using the 5-year posted rate (qualification rate).
The Government of Canada eliminates the availability of low-LTV insurance for certain types of mortgages (e.g., borrowers taking equity out of their home; mortgages with amortization periods over 25 years; home purchase prices over $1 million; borrowers with credit scores under 600; investment properties, etc.). Low-LTV mortgages must also meet the same eligibility requirements as high-LTV mortgages.
The government introduces a principal residence capital gains exemption. Any individual who was not a resident in Canada in the year the property was acquired will no longer be able to claim the exemption. Effective October 2, 2016, taxpayers claiming the exemption must also file the claim through the CRA (previously documents were only produced if audited).
The government launches public consultation on the potential to introduce some form of mortgage insurer-lender risk sharing. A consultation paper was released in late October 2016.
New OSFI Capital Requirements for Federally Regulated Mortgage Insurers takes effect January 1. Soon after, CMHC announces premium price increases for borrowers with down payments between 5% and 25%, effective March 17, 2017. These mortgage insurance price increases reflect OSFI’s significantly higher capital requirements for mortgage insurers. The price changes represented an approximate 12%–15% increase to high-LTV mortgage insurance. Genworth MI Canada and Canada Guaranty followed suit and matched CMHC’s price increases.
CMHC introduces a 0.01% administration fee that will be assessed against a portion of an issuer’s unused NHA-MBS guarantee allocations beyond a specified threshold.
OSFI unveils its final B-20 guidelines regarding residential mortgage underwriting practices and procedures for federally regulated financial institutions. It includes a new stress test that would require potential borrowers to qualify for underwriting using the higher of their contracted mortgage rate + 200 bps or the 5-year benchmark fixed rate published by the Bank of Canada.
As part of OSFI’s final B-20 guidelines, federally regulated financial institutions are disallowed from arranging (or appearing to arrange) a mortgage or combination of mortgages secured by the same property that would circumvent the maximum LTV ratio as defined in a lender’s underwriting policies or legal requirements.
Finally, OSFI’s new B-20 guidelines introduce greater due diligence, including: intended use of loan (e.g., purchase, refinancing), type of purchase (owner-occupied, recreational, investment, etc.), and type of refinancing (if applicable).
The IFRS accounting standard required banks to banks to set aside additional reserves to protect against potential losses. Previously, banks only had to set aside loan reserves for known (incurred) losses. For the first time, IFRS 9 required lenders to continually assess mortgage risk throughout the life span of a loan.
OSFI’s uninsured mortgage stress test begins.
Announced in the Liberal government budget of 2019, the RRSP withdrawal limit under the Home Buyers’ Plan was raised to $35,000 from $25,000. It took effect March 20, 2019.
Announced in the Liberal government budget of 2019, this plan will provide down payment assistance to first-time homebuyers by way of a shared equity program, in which CMHC will provide 5% of the purchase price for existing homes and 10% for new builds.
For default-insured purchases only; annual household income must be less than $120,000; the insured mortgage plus incentive amount cannot exceed four times the participants’ annual household income. The official launch was September 2019.
The Department of Finance announced changes to Canada’s benchmark qualifying rate, a key component used in stress-testing insured mortgages.
Under the new formula, insured borrowers will have to prove they can afford a monthly payment based on a rate that equals the weekly median 5-year fixed insured mortgage rate, plus 2%.
The change was set to come into effect on April 6, 2020.
OSFI announced that it was considering using the same revised benchmark rate for uninsured mortgages, or the borrower’s contract rate plus 2%, whichever is greater.
Note: Due to extreme events related to COVID-19, the government announced in March 2020 that it will shelve this proposal for now.
The Bank of Canada, Department of Finance and CMHC announced several mortgage measures to support liquidity in the mortgage market and those facing hardship related to the COVID-19 outbreak. Among them:
CMHC announced the following underwriting changes for CMHC-insured mortgages that will take effect July 1, 2020:
In April 2021, OSFI unveiled a proposed higher minimum qulaifying rate for uninsured mortgages. Starting in June 2021, borrowers will be stress tested at the higher of their contract rate plus 2% or a 5.25% floor rate, up from a minimum rate of 4.79% at the time. OSFI also announced it will revisit the calibration of the qualifying rate each December, at a minimum, “to ensure it remains appropriate for the risks in the environment.”