• New CMHC Rules

    June 9, 2020
  • new cmhc rulesNew CMHC Rules

    Like You, We Are Frustrated with the new CMHC rules

    What’s the best way to screw up housing?

    CMHC is changing policy during an economic slowdown.

    Maybe CMHC is trying to get out of the housing business.

    CMHC’s mandate

    To help Canadians access affordable housing choices. It sounds good but their recent history and the federal government is generally well intentioned, their history would suggest they stay out of the business and real estate worlds. As we will discover, it was the Department of Finance’s dumb ideas who put us in this situation of unaffordable housing.

    Natural Supply And Demand

    Not so long ago, real estate markets were held to just supply and demand and the natural market. But after the stock market crashed in 2000 and after 9/11things changed drastically. What was this change? Government intervention. The system was filled with federal cash and the lowering of interest rates below their market level. The consequences were positive. With Canadian mortgage rates tumbling, more Canadians could afford housing and it was positive for the economy. This was smart except they got greedy.

    How Did CMHC Get Greedy?

    1. Increased the amortization for a purchase to 40 years
    2. Instituted mortgages with no money down
    3. You could borrow for a down payment
    4. You could refinance up to 95% of the value

    Did these policies work? You betcha. It created speculation. Canadians were buying 2 or 3 homes at a time and why not! You had nothing to lose. They put no skin in the game.

    What Has Happened Since These New CMHC Rules?

    The federal government of Canada not only implemented all these policies, but they eventually took them all away including the 40-year amortization back to 25 years. It has gotten worse, really worse, they introduced a mortgage stress test where to qualify for a mortgage, you had to pass a test to qualify at 4.94%. The result, Canadians qualified for 20% less than previous. In reality, it was prudent as homeowners returned to practicality.

    And now?

    New CMHC Rules: announcement as of July 1st, 2020:

    1. Limited the gross/total debt servicing ratios to the new requirements of 35/42, previously 39/44
    2. Minimum credit score for at least one borrower is 680
    3. No longer are you allowed to borrow for a down payment (actually not a bad thing)

    How does this affect the average purchaser?

    They will afford another approximately 11% less due to the new CMHC rules. The timing is strange. Are we not in troubled economic times? Is this the time to do this? No. The stress test more than covered for the protection of the lender and the consumer. In my opinion, it is the wrong policy at the wrong time.

    Why is it Mindless?

    Canada, similar to other countries worldwide, are going through a pandemic. This virus has already had an impact which has led to an economic contraction. Hurting potential consumers when they are already down is empty headed. As a mortgage broker, I certainly have profited over the years with these policies and will not complain. However, I also have kids and want to see them thrive in the future. Here’s another example of a useless change: Mortgage Stress Test Reduction…Don’t Get Too Excited

    What is my suggestion?

    Let the market handle itself as this includes interest rates. Not so long ago, we had recession every 5-6 years. It was normal, it took out the excesses. The competent took over the incompetent and the market house price took off itself. We did not have gyrations that we have now. The bottom line is this: Canadian government stay out of the Canadian housing policy. If we are a free capital system, stay out and stop manipulating the market.

    Robert Floris Hamilton Mortgage Broker

    Robert Floris, Lead Mortgage Broker with over 30 years of mortgage expertise, currently at Mortgage Architects.

    Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.

    Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

    If you would like to apply for a mortgage online, please follow this link.

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