I know there is a great amount of confusion going on about the new mortgage insurance guidelines coming into place, so here is a brief explanation for you, and if you have any work associates or clients that need this information, please feel free to forward it on.

BANK OF CANADA CHANGES

Qualifying Rate – For new applications received on or after April 19th, the qualifying rate will be changed for all Variable rate terms, as well as 1-4  year fixed rate terms.  The new qualifying rate for those terms will be the chartered bank’s 5 year posted rate.  5 year fixed rate terms or longer fixed rate terms will be qualified at the actual contract rate given to the client (which is the lender’s discounted rate).

Self Employed Stated Income–

- Income qualifying - CMHC feels that clients who have been self employed for more than 3 years should be able to produce adequate tax returns and financials to fully income qualify using the income declared to CRA (line 150).  Therefore, effective on all new applications received on or after April 9th, CMHC will only be accepting stated income applications for clients that are LESS than 3 years business for self.  This is because these clients don’t typically have 2 full years completed tax returns yet, so they aren’t able to fully income qualify with a 2 year average.  If they are less than 2 years BFS, the client will need to have had employment in the exact same line of work previously.

- Self employed borrowers,without traditional income verification, must put 10% down payment on purchases, the maximum loan to value (LTV) is 90% on a purchase or when porting a mortgage, previously 95% LTV.

- And refinancing maximum is 85% LTV, previously 90% LTV.

CMHC ONLY CHANGES into affect April 9, 2010. (Genworth and AIG have yet to jump on board this change)

• An 80% rental offset is no longer allowed in the TDS calculation (used to help borrowers qualify) if the subject property is generating rental income. 50% of the gross rental income can form part of the borrowers gross annual income, this works out to be MUCH less than the previous 80% offset used by CMHC.
• Rental income from other properties can be used, but must be verified with T1 Generals and NOAs. You can only gross up the net rental income by 15%.

**For further details please see the two attachments straight from CMHC on the new guidelines set out by the Bank of Canada**

If you have any questions or concerns, feel free to respond to this email and I’ll do my best to clear up any further confusions.

Good luck with the new guidelines!

I have received a number of Panic Calls from clients with regard to Flaherty’s announcement this morning—DO NOT PANIC. There was nothing new in the announcement–most of what he had to say–so called new rules , are rules the mortgage industry as been working with for more than a year.

The only totally new item was in the area of refinances–where its official you cannot take out more than 90% of the equity in your house. Even this is really not new , as is has been very difficult for more than a year to take out more than 90% of the equity, unless you were an extremely strong applicant.

With regard to the purchase of investment and rentals–here again the rule the industry has lived by for the last year or more is 20-25% down.

So theres nothing really new in any of this–simply acknowledging the rules all ready in place.

This morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP and it’s members was actively engaged in the discussions around these changes which are as follows:

1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;

2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one’s home;

3. Non-owner occupied properties will require a minimum down payment of 20%.

There were no changes to down payment requirements or length of amortizations for owner-occupied residences.

We will continue to monitor developments including transition rules and update you accordingly