2021 CMHC Changes — Why Are Things Going Back to “Normal”?

First, we had the Summer 2020 changes, new stricter rules for underwriting by the CMHC. Now — in 2021 — those changes are going down, and new rules come in full force. How to get a mortgage with the new guidelines and use them to your advantage? And why the changes won’t define your approval? Read in this guide. 

CMHC’s “official” target with any changes is simple — they want to see more stability on the market. However, things don’t always go well. 

Last year, in June, CMHC announced a new set of underwriting guidelines. 

We can sum them up in just 3 points: 

  • GDS and TDS limiting (aka limiting the gross and formula of total debt servicing) were limited to 35 and 42 (if it doesn’t mean a thing to you, it means a lot for the underwriters, who from that moment could not give an “approved” status to people with the old, bigger GDS and TDS; 
  • The minimal Credit Score was raised to 680 (at least one borrower in the deal should’ve had it); 
  • So-called “non-traditional sources of down payment” (aka the money you borrowed from someone or a lender’s cashback) were no longer legible as equity. 

To put it even shorter — you’ve had to have less debt, a better credit score, and had to throw more savings into the down payment to get mortgage approval. The rules got tougher. 

What Has Changed in 2021? 

Basically — things returned to the pre-July 2021 stage. CMHC reversed the previous changes and the situation to almost exactly at the previous point: 

  • GDS is again at 39%; 
  • TDS is back to 44%; 
  • A minimum credit score is now — again — 600. 

That’s it! If they didn’t make any changes in 2020 — things would stay the same.

Why CMHC Reversed the Rules Change? 

To quote the CMHC directly — “because July 2020, underwriting changes were not as effective as we had anticipated and we incurred the cost of a decline in our market share.” 

Now, this does sound like “we made a mistake, we want our customers back!”, but in reality — things are a little deeper: 

  1. CMHC has a new boss — Romy Bowers. It’s one of the first decisions he makes as the new chief executive (and technically, he’s not responsible for the changes that were made before him, so he clearly can reverse anything he wants); 
  2. CMHC lost some points in the eyes of the two major insurance agencies in Canada — Canada Guaranty Mortgage Insurance and Sagen MI Canada. They never adapted to the 2020 changes (and it looks like they didn’t even plan to); 
  3. CMHC’s “decline in market share” simply means that they lost the competition to two other major Canadian mortgage agencies — Sagen (aka Genworth, but they’ve changed the name recently) and Canada Guaranty. When one of 3 major players raises the “price” of a mortgage, and two others don’t do it… it’s clear that “stability of the market” is not the core issue. It’s a revenue decline. 

The Bottom Line 

With all the instability on the housing market today — the CMHC chaotic guideline movements don’t change the game for most homebuyers. The market is way more dependent on the pandemic consequences and timing now. Besides, most Canadians can barely afford housing and mortgage anyway, so the small changes don’t change their situation. And finally — the changes are not directed to the people; they dictate the relationship with the insurance companies. Now that things are back to the “pre-2020” level — CMHC will hopefully sort all the things out. 

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