Genworth and Canada Guaranty won't adopt new mortgage rules

Genworth and Canada Guaranty Won’t Adopt CMHC’s New Mortgage Rules

Following the announcement of CMHC’s new mortgage rules last week, Canada’s other two mortgage insurers, Genworth Canada and Canada Guaranty, confirmed Monday they will not be following CMHC’s lead.

“Genworth MI Canada Inc….confirms that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements,” the company said in a release.

Similarly, Canada Guaranty said it “confirms that no changes to underwriting policy are contemplated as a result of recent industry announcements.”

To recap CMHC’s mortgage rule changes, the following will apply to insured mortgages (those with less than 20% down payment) as of July 1, 2020:

  • Maximum Gross Debt Service (GDS) ratios will be lowered to 35% (from 39%)
  • Maximum Total Debt Service (TDS) ratios will be lowered to 42% (from 44%)
  • The minimum credit score needed to qualify will rise to 680 (from 600) for at least one household borrower
  • Many non-traditional sources of down payment that “increase indebtedness” will be banned
    • It has been confirmed, however, that borrowers will continue to be able to use a loan from their RRSP through the Home Buyers Plan, a home equity line of credit (HELOC) on one of their second properties, or a HELOC on a property owned by their parents if the money is gifted.

“We acknowledge the potential ‘pro-cyclical’ negative impacts on housing markets of CMHC’s decision to tighten underwriting,” CMHC CEO Evan Siddall wrote on Twitter in response to criticism. “However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure.”

Why the Other Insurers Won’t Adopt the New Rules

In explaining its decision, Genworth Canada President and CEO Stuart Levings said the company’s current underwriting policies for insured mortgages already allow it to “prudently” manage its risk exposure.

“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure,” Levings noted, “including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios.”

Similarly, Canada Guaranty said it has been well-served by its existing underwriting criteria over the years and sees no need to make adjustments now.

“Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns,” Mary Putnam, VP, Sales and Marketing of Canada Guaranty, said in a release, adding this has resulted in the lowest loss ratio in the industry.

“Recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas,” she said. “Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”

Observers saw the announcements as a positive for borrowers who will continue to have some options in the markets should they not be able to meet CMHC’s stricter qualification standards.

“We like this decision,” noted National Bank of Canada analyst Jaeme Gloyn. “The decision will help soften potential negative impacts to the housing/mortgage market as we argued against tinkering with mortgage underwriting criteria in light of the COVID-driven housing market slowdown.”

NBC had estimated that CMHC’s new rules relating to debt service ratios and credit scores could have impacted up to 20% of CMHC-insured borrowers.

Impact of CMHC’s New Mortgage Rules

So what are the impacts of CMHC’s new rules on borrowers shopping for high-ratio mortgages?

CIBC’s Benjamin Tal estimates the change will mean about 5% of homebuyers will no longer be able to qualify for a mortgage.

For those who can, it will mean a reduction in their buying power.

“Fewer people will qualify for a mortgage, and if they do, the maximum they can borrow will be around 10% or more less than it is right now, ” wrote Ross Taylor, a mortgage agent with Concierge Mortgage Group.

Taylor notes that a household earning $120,000 would currently qualify for a mortgage of around $565,000 plus insurance. With CMHC’s stricter rules, that same household would only qualify for a mortgage of approximately $502,000 plus insurance costs.

“…keeping good credit hygiene is more important than ever if you want to buy a home, especially if you need mortgage insurance,” Taylor adds.

Genworth and Canada Guaranty won't adopt new mortgage rules
  1. Asa first time home buyer whos family is doing just fine paying the mortgage we have, this change angers me. With the new changes, we would not have been able buy our home. It was already very hard for those who were sick renting to get out of that and into buying a home. Not because they can’t afford a mortgage (most places for rent cost more a month than any mortgage) it but because it’s so hard to get the initial requirements to buy that first home. Had my family not had the support we had, we would have never been able to buy our house. A house we can afford better than we could renting.

    Making it even harder for first time buyers is completely and utterly unnecessary. All I’ve heard from the above article is that they are supporting the privileged, already wealthy people getting homes and keeping everyone else trapped in the vicious rental cycle. As I said already, most who can afford the rent being asked from places (a three bedroom is a good $2000-3000 a month) can easily do a mortgage. (Ours is around $1600)

  2. They will fall in line eventually in the near future. CMHC has a large database and sees the risk. It would be foolish not to follow CMHC’s lead.

    After the recovery, CMHC might revert back.

    1. Well said. It is the height of absurdity to tell people they can’t afford to pay a $1600 mortgage payment while they are paying $2000 to $3000 in rent. The only difference being property taxes and, if applicable, condo fees. The utility costs are the same (for those who say otherwise, it is almost impossible to find rentals with utilities included since the 1990s. So many people are clueless about this simple fact). The debt service ratios, credit scores, so called “risk management”, is all a bureaucratic shell game of artificial barriers especially when you consider it is secured debt. Nonsense all of it. Glad I’ve owned since ’06, but I feel bad for renters.

      1. Sorry, meant to reply to Elizabeth Burns’ comment above but it somehow posted under this one.

    2. Looks like this comment didn’t age very well. At least CMHC admitted that they were wrong.

  3. I just got rejected on a 205000.00 mortgage with 15000.00 down. I make 90000.00 a year with a credit score of 780. Reason being…my last paystub was from the end of may. I have full documentation that I will be back to work first week of august. I also have 10000.00 dollars in reserve in case. But no. I got shutdown. My mortgage would have been 780.00 a month plus property tax a d insurance which would have come to 1350.00 a month. It is unbelievable how this can be allowed. I know people who have truck a d insurance payments more than that a month…and even if I did get laid off work EI would cover the mortgage payments. What a disaster this is.

  4. I’m not well-schooled in this area. How does this affect my application? All things being equal, does it mean a private insurer is more likely to insure my mortgage then (since they’re not following CMHC’s lead)? Or would the same application (I.e., mine) be just as likely to get approved/rejected notwithstanding the differences in policy…? I’m using mainly CMHC guidelines for how to prep my finances ahead of applying, so this makes me wonder if I should be using a private insurer’s website’s advice and criteria rather than relying solely on CMHC info.

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