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CMHC Changes: May 1 2014

As some of you are aware by now, CMHC has announced its discontinuation of 2 major products on Friday:1)    CMHC Second Home Financing

2)    CMHC Self-Employed Without Traditional Third Party Validation of Income

 

Please find below some very useful Questions and Answers from CMHC concerning their decision, and what it means.

CMHC Discontinuation of Second Home Product Questions and Answers for Industry Partners1)    Does this mean that a borrower/co-borrower who wishes to purchase a property for a child to pursue studies in another location will no longer be able to access CMHC-insured financing?

  • A borrower/co-borrower is still able to access CMHC-insured financing provided that they do not have an existing CMHC-insured homeowner loan in place.

2) Does this mean that a borrower will no longer be able to act as a co-borrower on another application?

  • CMHC will now limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

3) Will all borrowers be subject to the restriction of a maximum of one CMHC-insured homeowner property (1-4 units)?

  • Yes, CMHC will now limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time

4) Does this mean that a borrower/co-borrower has to occupy the unit being financed?

  • At initiation, the property that secures a CMHC-insured loan must be intended for occupancy at some point during the year by a borrower; or a relative of the borrower on a rent-free basis. Lenders must confirm owner occupancy and maintain the confirmation on file.

5) Does this restriction apply to guarantors?

  • No, guarantors are not restricted however lenders must follow guarantor policies. The guarantor’s/ covenantor’s income must not be used for the purpose of satisfying CMHC’s borrower qualification criteria unless the guarantor/covenantor occupies the home and is the spouse or common-law partner of the borrower.

6) If a borrower is temporarily transferred to another location for work purposes and wishes to purchase another property in their temporary location while renting out their current family home?

  • The mobile workforce is still able to access CMHC-insured financing provided that they do not have an existing CMHC-insured homeowner loan in place.CMHC will now limit the availability of Protected For Distribution to Industry Partners homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

7) How will this affect First Nations marketing second home properties on designated leasehold lands on-reserve?

  • A borrower(s) is still able to access CMHC-insured financing provided that they do not have an existing CMHC-insured homeowner loan in place. Financing can also be provided by lenders on a conventional basis, with a loan-to-value less than 80%. It is important to note that any vacation home development will be treated in exactly the same manner throughout the country.

8) Will CMHC accept financing overlap in situations where the closing date of the home being purchased is before the closing date of the home being sold?

  1. Overlap of CMHC-insured financing (i.e. bridge financing) will be permitted when there is a firm purchase and sale agreement for the existing property. Other exceptions that may arise due to specific circumstances may be considered on an exception basis.

9) A borrower is purchasing a second home/having a second home built and will require a CMHC-insured mortgage. The closing date will only occur on or after May 30, 2014. Will the discontinuation of this product impact this borrower?

  • As long as the request for mortgage loan insurance is received by CMHC prior to May 30, 2014, the application will be subject to the existing product offering, terms and conditions, even if the closing date/progress draws occur on or after May 30, 2014.

10) A borrower requires CMHC-insured financing for a rental property they wish to purchase. Will the discontinuation of CMHC Second Home impact this borrower?

  • Borrowers with one CMHC-insured homeowner loan (1-4 units) will still have access to CMHC-insured financing to purchase rental properties under CMHC’s Rental Loan products.

11) When is a property considered a rental property and not eligible for homeowner mortgage loan insurance?

  • a)    A property is considered to be a rental property where at initiation
  • Neither the borrower or a relative who is not paying rent, will occupy the property (or one unit of the property) at some point each year; or
  •  The property contains 5 or more units.

Any of the above conditions will require the application for mortgage loan insurance to be submitted under CMHC’s Rental Mortgage Loan Insurance products. The Approved Lender is expected to determine who will occupy the property by asking the borrower and documenting the response on file. For rental loan applications submitted for insurance, the maximum loan-to-value (LTV) ratio is 80 percent for 1-4 unit properties. Protected For Distribution to Industry Partners

12) Does the discontinuation of this product impact loans that are submitted by the Approved Lender for CMHC emili Low Ratio risk assessment?

  • Effective May 30, 2014, CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time, regardless of whether the loan is hi-ratio or low ratio. Loans that have been submitted by the Approved Lender for CMHC emili Low Ratio risk assessment and have received an “insurable” response no earlier than 6 months before the date of request for Portfolio Insurance, will be eligible for inclusion in a pool of loans for Portfolio Insurance subject to any limitations that CMHC may, from time to time, place on Portfolio Insurance.

13) When will CMHC’s website, The Handbook for Approved Lenders, marketing collateral and online tools be updated?

  • Updates will be effective May 1, 2014.

 

Discontinuation of CMHC Self-Employed Without Traditional Third Party Validation of Income Operational Questions and Answers for Industry Partners

1) Will self-employed borrowers still be eligible to access CMHC mortgage loan insurance?

  • CMHC will continue to offer mortgage loan insurance for self-employed borrowers with traditional third party validation of income. Self-employed borrowers with documentation to support their income have access to all existing 1-4 unit CMHC Mortgage Loan Insurance products subject to the same product criteria and insurance premiums as salaried borrowers.

2) What type of documentation is required for self-employed borrowers to support and verify their income when seeking CMHC-insured financing?

  • For the majority of self-employed borrowers, income validation is readily available. For example, self-employed borrowers can submit copies of their Canada Revenue Agency (CRA) Notice of Assessment (Avis de Cotisation applicable for Quebec residents only), audited financial statements or review engagement financial statements prepared by a practicing accountant for the previous two year period.

3) What are some examples of supporting documentation for confirming the length of business operation for prospective borrowers who are self-employed?

  • The form and detail of the documentation may vary depending on the characteristics of the individual loan application submitted for insurance. Examples of supporting documentation for confirming the length of business operation include: income tax returns supported by the CRA Notice of Assessment, business credit reports, GST returns, active bank accounts, financial statements accompanied by a Review Engagement Report signed by a practicing accountant, audited financial statements, business license or articles of incorporation.

4) A self-employed borrower without traditional third party validation of income is purchasing a home/having a home built and will require a CMHC-insured mortgage. The closing date/progress advance draws will only occur on or after May 30, 2014. Will the discontinuation of this product impact this borrower?

  • As long as the request for mortgage loan insurance is received by CMHCprior to May 30, 2014, the application will be subject to the existing product offering, terms and conditions, even if the closing date/progress draws occur on or after May 30, 2014.

5) Does CMHC plan to make changes to the Self-employed With Traditional Third Party Validation of Income product?

  • CMHC is not making any changes to the self-employed product where borrowers are able to provide traditional third party validation of their income.

6) Does the discontinuation of this product impact loans that are submitted by the Approved Lender for CMHC emili Low Ratio risk assessment?

  • Effective May 30, 2014, CMHC will no longer accept applications for Low Ratio risk assessment where the borrower is self-employed without traditional third party validation of income. Loans that have been submitted by the Approved Lender for CMHC emili Low Ratio risk assessment and have received an “insurable” response no earlier than 6 months before the date of request for Portfolio Insurance, will be eligible for inclusion in a pool of loans for Portfolio Insurance subject to any limitations that CMHC may, from time to time, place on Portfolio Insurance.

7) What happens if a lender submits an application for a self-employed borrower without traditional third party validation of income on or after May 30, 2014?

  • If a request for mortgage loan insurance is submitted to CMHC on or afterMay 30, 2014, the lender will receive the following error message: XXXX SE W/O INCOME VALIDATION NOT ELIGIBLE XXXX PLS RESUBMIT WITH TRAD INCOME VALIDATION The Approved Lender will have the ability to re-submit the application provided that the borrower is able to provide traditional third party validation of income. Alternatively, the Approved Lender may cancel the loan application.

8) If a loan application for a self-employed borrower without traditional third party validation of income is submitted to CMHC prior to May 30, 2014 and then re-submitted with changes on or after May 30, 2014, will the application still be eligible for CMHCmortgage loan insurance?

  • As long as the request for mortgage loan insurance is received by CMHCprior to May 30, 2014, the application will be subject to the existing terms and conditions of CMHC’s Self-Employed Without Third Party Validation of Income even if the application is re-submitted on or after May 30, 2014.

9) When will CMHC’s website, The Handbook for Approved Lenders, marketing collateral and online tools be updated?

  • Updates will be effective May 1, 2014.

 

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