After completing a review of mortgage insurance business, the Canada Mortgage and Housing Corporation (CMHC) announced, effective immediately, it would no longer offer mortgage loan insurance for the financing of multi-unit condominium construction.
This new move will not affect homebuyers. The CMHC’s insurance for mortgage loans to individuals hoping to buy a condo will remain unchanged.
CMHC introduced the insurance for condo construction in 2010 to help developers access insured financing during the construction period. However, the demand just wasn’t there: the CMHC hasn’t provided any insurance for multi-unit condominium construction since 2011, or one year after introducing the insurance. There are a number of private firms, such as MCAP, that provide the service.
In their announcement, the CMHC said the move was “a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC.” The corporation stressed the change doesn’t affect the government’s mortgage loan insurance parameters and doesn’t apply to private mortgage insurers’ products and services.
Another change will come into effect as of July 31st: the CMHC will align its low-ratio transactional mortgage loan insurance product (available to home buyers with a downpayment of over 20 per cent) with its high-ratio product by establishing maximum house prices, amortization periods and debt servicing ratios.
The maximum purchase price / lending value will now be capped at $1 million at the end of July and the maximum amortization period will be 25 years.
More details here:
In the Twitterverse, many real estate watchers saw the cancellation of the mortgage loan insurance for condo developers as a bit of a non-issue and were more intrigued by the ramifications of the alignment of the low-ratio transactional mortgage loan insurance product with the high-ratio product. Here are some of the early reactions:
Re: CMHC rule changes, the condo developer financing is a non issue. Putting restrictions on conventional mortgages could matter…
— Ben Rabidoux (@BenRabidoux) June 6, 2014
Hope media doesn’t jump on report that @CMHC_ca no longer insuring condo construction loans. Only a handful of projects in TO ever used it.
— Mark Fogliato (@MarkFogliato) June 6, 2014
@BenRabidoux I figured as much. It looks like CMHC is really reducing all of its fringe-y programs. That’s my main takeaway
— David George-Cosh (@itsdgc) June 6, 2014
— Frank Margani (@FrankMargani) June 6, 2014