More CMHC Mortgage Policy Changes

The government today announced a couple more changes that impact homebuyers beyond the announcements made several weeks ago. These changes will be likely adopted by the other two mortgage insurers in Canada, AIG and Genworth. In summary:

1) Rental income in subject property (the property being mortgaged) will be treated much less favorably compared to how it currently is.

2) Rental income from non-subject properties will be treated just as favorably or more favorably than before.

3) “Stated Income” self-employed people will require 10% down to purchase a home, and can only draw 85% of the equity in their homes for refinancing.

I feel that these changes are fairly hard hitting, especially for borrowers in the Greater Vancouver Area, where house prices are so high and many people need any advantage they can get in qualifying to buy a home or to refinance. Additionally, by making it easier at the same time for those who already own rental properties to qualify for more financing, it skews the property market in favor of the more affluent.

Additionally, self employed people will have a more difficult time purchasing a home unless they declare or are able to substantiate their income (usually via tax returns). I imagine this was done due to a higher default rate for those who purchased under this program. I am hoping that lenders will take the time to dig through financial statements of a company to substantiate income for qualifying purposes to mitigate the effects of these changes on self employed businesspeople.

I am personally not thrilled most of the times that decisions like this are made to make my job more difficult, and I had felt the original changes announced recently were a good balance that helps the market to stay stable. For most of the country, the changes shouldn’t effect them or their market too much, considering that a plummer making $60,000/year buying a house for $300,000 in Toronto is much easier than if he were living in Vancouver, where it is difficult to buy a 1 bedroom condo for that price.

Like the changes that were implemented in the fall of 2008, I believe that these changes could lead into a market adjustment leading into the summer. With the potential of mortgage rate increases to come due to a return to a stronger economy, I do not believe that they need to make these changes to protect home values. Canada’s mortgage lending system is already one of the safest and best in the world, and I believe the changes are generally unnecessary to protect that.

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