Changes to Canada Mortgage & Housing Corporation ( CMHC)
Federal Finance Minister Jim Flaherty recently announced that the role of CMHC is under review and is now under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions.
The motivation stems from a preference by the banking industry to secure conventional mortgages (a down payment of greater than 20%) even though there is no legal requirement to do so. Banks are doing so as it is easier to securitize these insured loans. The practice is exasperated by banks offering higher rates on conventional mortgages which defy the logic behind the original requirement and intent for CMHC insurance on mortgages with higher risk. Why are consumers paying a lower rate with only a 5% down payment versus the consumer who has a 20% down payment or greater? Obviously the risk in real terms is greater to the bank with the smaller down payment, but the opposite was is being reflected in mortgage rates.
We are unaware of the impact of this decision to the average consumer at this time but expect a reduction in the amount home owners can refinance as a home owners line of credit. Expect a reduction to 65% loan to value from
the current 80% LTV. We will keep you posted.