On July 1, 2020, the Canada Mortgage and Housing Corporation, CMHC, reviewed it’s underwriting rules. It decided to unilaterally tighten its underwriting rules which, as the #1 default insurer, made it much more difficult for people who carried higher than average debt to get approved for a mortgage.
The result was devastating. Not only did many Canadians get pushed out of the market but CMHC’s market share was trashed.
Many lenders stopped sending CMHC as much business once the rule change was implemented. For many, CMHC stopped serving their borrowers’ needs and financial situation as well as a fallout when the CEO of CMHC rebuked lenders for not sending it more business. It never bodes well to make a mistake like that.
The CMHC justified its decision by claiming that the rule change was to help maintain the financial stability and future of its market and would also help them absorb even more market share because of it. The changes were meant to protect home buyers while reducing tax payer and government risk to support the stability of the housing market during the extreme demand and price growth during the pandemic. It was going to help curb the overheating market.
It clearly didn’t work out like that.
CMHC fell to a 23% market share of new insurance, losing half of its market position and dropping to the third place for new insurances. Even the CMHC admits that their decision didn’t work out at all as they had anticipated. The market didn’t cool and they lost a huge amount of market share.
The new CEO has decided that CMHC will now be returning to its debt ration maximums of 39% gross debt service (GDS) and 44% total debt services (TDS) to match its previous standards prior to July 2020.
For many borrowers with larger debt loads such as professionals with school debt, this means they will have more options for getting default insurance. However, due to the elapsed time from CMHC’s July 2020 decision, several businesses have filled the void and CMHC may never recover the market share it previously had.
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