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GUEST SUBMISSION: The Canadian Mortgage and Housing Corporation (CMHC) recently provided two key updates to its multifamily financing programs in Canada.
1) Effective immediately CMHC will be reviewing multifamily mortgage applications using a more prudent risk management approach.
The corporation indicated it has to balance its risk in markets with elevated rent-up risk, against the social outcomes provided. This may result in not all features of multi-unit mortgage loan insurance products being available for every application, or additional mitigation measures being applied.
2) Effective June 19, CMHC is increasing its multi-unit mortgage loan insurance premiums.
The corporation indicates this is as a result of its annual pricing review and to reflect the new International Financial Reporting Standards 17 (IFRS 17). The accompanying image shows the increased premiums.
Our perspective:
A) Premiums are generally included in the mortgage and won't directly influence borrowers' ability to qualify for a mortgage or the underwriting debt service ratios used to calculate loan amounts.
B) In practice by adding a larger premium to borrowers' mortgage amount, they may have higher actual mortgage payments, leading to less cashflow after making their mortgage payment.
C) CMHC has indicated that the level of social outcome provided in the MLI Select program will balance the risk posed on certain files. This means more points will help offset risks.
More pertinently (based on our experience), CMHC highly values the affordability social outcome and has provided a high degree of flexibility and prioritization for files with affordability.
As such, for applicants who need extra flexibility or program features, having a higher number of points and including affordability as a social outcome may lead to increased consideration for all program features.
D) It is important for borrowers to be conservative in their planning for loan approvals.
Plans should be made for more conservative underwriting and not necessarily having all program features being available - especially if borrowers are not achieving full points in the program or having affordability as part of their social outcomes.
Nadeem Keshavjee is the president and founder of GreenBirch Capital - a commercial mortgage brokerage with combined experience of $6 billion in commercial mortgages and over five decades of combined experience. The firm has deep experience with CMHC multifamily mortgages, having obtained 68 approvals in CMHC's MLI Select program.
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