Canada’s national housing agency is hiking its mortgage insurance premiums, starting on May 1, 2014. This increase will add about $5 more per month to a typical mortgage for a buyer who puts down 5% and has a 95% loan-to-value ratio.
CMHC says the increase is a measure to meet target capital requirements. It doesn’t affect existing homeowners or home buyers.
Premiums Increased by 0.4 per cent
Mortgage insurance premiums for home buyers who make a down payment of less than 20 per cent will increase by 0.4 per cent effective May 1, Canada Mortgage and Housing Corp said. The move is an effort to shore up the government-run agency’s capital and reduce taxpayers’ exposure to the housing market, CMHC said.
Those who have existing mortgages insured by CMHC will not be affected by the change, but the higher rates could make borrowing more expensive for new buyers in the current hot real estate market. Unlike mortgages secured by Fannie Mae or Freddie Mac, CMHC does not have a private insurer that matches the increases, so it has to raise rates on its own, said BMO senior economist Robert Kavcic.
The 0.4 per cent increase applies to all loans with down payments of less than 20 per cent. In addition, CMHC is increasing rates on what it calls “low-ratio” portfolios — those with down payments of less than 5 per cent — because these borrowers often seek and pay mortgage insurance from banks to mitigate risk. However, both CIBC and RBC said they were confident the majority of these borrowers would be able to adjust to the increased payments and ultimately pay their loans back.
CMHC Says It’s a Measure to Meet Target Capital Requirements
In a move to curb risk in Canada’s mortgage market, the Canada Mortgage and Housing Corp (CMHC) is increasing its premiums for homebuyers who make down payments of less than 20%. The increase is effective May 1 and will mean an extra $5 a month for the average insured mortgage holder.
According to CMHC, the hike is a measure to meet target capital requirements under new regulations introduced by OSFI last year. These new requirements apply to federally regulated mortgage insurers and require them to hold significantly higher levels of capital, as a result of the increased level of credit risk in the Canadian real estate market.
CMHC says the change will help it meet these targets and will also allow it to continue providing the necessary insurance required for the long term stability of the Canadian mortgage market. The increases are expected to bring in $150-million to $175-million annually.
The increase does not affect existing homeowners or those who already have a mortgage insured by CMHC. In fact, if you have a mortgage insured by CMHC and then you take out another mortgage, you can port the insurance from your old mortgage to your new one. If you have a mortgage with a mortgage balance, amortization, and loan-to-value ratio that are lower than those of your old mortgage, the CMHC insurance will be transferred.
In a release, CMHC says the changes are intended to reduce taxpayers’ exposure to risk in the mortgage market and help ensure that the Canadian financial system is stable for years to come. It also said the changes will provide a positive impact on the housing market by improving affordability and reducing mortgage delinquency rates.
During an interview with Global News, CMHC CEO Evan Siddall said that the move will help CMHC meet its target capital requirements and will also allow it to continue providing the insurance required for the long term stability of the mortgage market. He also noted that the changes will not have a significant impact on the market, as buyers who put down larger down payments will be affected more by the increase in premiums.
CMHC Says It’s Not Targeting Home Buyers
The Canada Mortgage and Housing Corp, which provides mortgage insurance, affordable housing and securitization, helps support a steady supply of housing by serving local governments, lenders and developers. CMHC’s noble goal is to help ensure that all Canadians have access to home ownership.
CMHC also plays an important role in regulating the mortgage industry to make sure it is fair for consumers and that mortgage companies don’t take advantage of borrowers who may be vulnerable to fraud. The agency recently released an action plan describing initiatives to combat fraud in the mortgage market, including the rollout of Citadel software from Equifax EFX.n that flags high-risk mortgage applications.
But in the past, CMHC struggled to meet its goals due to outdated technology and siloed systems that hindered productivity and prevented employees from making informed business decisions. To address this, CMHC underwent a complete business and technology transformation to modernize its systems.
For example, the agency upgraded its software to a cloud-based platform built on Microsoft’s Azure platform, which helped employees better connect with clients and the housing market. This improved their ability to provide real-time information and respond to client inquiries more quickly.
It also allowed CMHC to replace many of its custom-built applications with a more unified set of technologies that can be more easily updated and are supported by new processes to help reduce the time it takes to do business. In addition, CMHC improved its customer relationship management (CRM) platform to give a single view of a customer’s home-buying journey, from searching for a home to signing an agreement.
Another program that CMHC has been working to improve is its notice of assessment, which it now allows online. It is used by lenders as one of the main ways to verify a person’s income for a mortgage loan.
In the past, CMHC used to print notices of assessments on paper, which Vives says is not suitable for the digital age. In order to prevent fraud, lenders will need to adapt and implement more data-driven methods to check a borrower’s income.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.