Canada Mortgage and Housing announced the elimination of two mortgage products, effective on May 30, 2014.
1. The Self-Employed, Stated Income Program
Canada Mortgage and Housing will no longer be insuring mortgages for self-employed people on a stated income basis. This mortgage product has been available to help self-employed borrowers who own a small business and are unable to provide verification of their income, at least through conventional means. Basically under the program the borrower will have owned the business for at least 2 years and handled its finances in a responsible manner.
As of May 30, these self-employed borrowers will require third party validation of their income. This can be achieved with copies of their Notice of Assessment or either audited or unaudited financial statements.
2. The Secondary Home Program
CMHC stated that, as of the same date, it will limit homeowner mortgage insurance to “only one property per borrower/co-borrower at any given time.” This means that they will also discontinue the 2nd home mortgage insurance program in which a borrower could buy a second home—a cottage for instance—with as little as 5% down.
Guarantors are also Affected
Under these revised guidelines, the change will also limit guarantors on an insured mortgage. So if a parent wants to guarantee a mortgage to be CMHC insured for a child, they would not be able to if they already have a CMHC insured mortgage themselves. “This could be a big thing,” says Betty Talbot, mortgage agent for Centum Omni Mortgage Corp. “Most people don’t remember if they had an insured mortgage when they purchased for themselves; and if they did, the insurance would stay on the mortgage until paid off or re-financed regardless of the loan to value.”
Private Insurers to Continue Both Programs
In speaking to Gidia Molinaro, mortgage agent for Centum Omni Mortgage Corp., both private insurers, Genworth and Canada Guaranty, will continue to offer the self-employed stated income and second home programs with one qualifier. Both companies will limit any second home purchase to properties with one unit and can only be owner occupied or occupied by a member of the owner’s immediate family. Previous to this announcement, they allowed 2-unit properties.
Is it Reducing Risk to Taxpayers?
Some industry experts say that the move to off-load these programs to private insurers is a step toward reducing risk to taxpayers. In the long run, whether this strategy would actually minimize taxpayer risk remains to be seen.