The COVID-19 pandemic is eliciting a lot of changes in the housing market. One of them
being the most recent announcement by CMHC that effective July 1st, 2020 the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
Establish minimum credit score of 680 for at least one borrower; and
Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes
To further manage the risk, CMHC has stated that during these uncertain times, "we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvesting in housing. Consultations have begun on the repositioning of our multi-unit mortgage insurance products".
Exposed
I have known for quite some time, and have stated for quite some time, that we are headed for financial challenges as our debt outpaces our income. Covid-19 has exposed, exacerbated and accelerated an already sensitive vulnerability in our financial situation. The recent CMHC changes will serve to reduce government and taxpayer risk, support the stability of the housing markets and will protect home buyers all the while curtailing excessive demand and unsustainable housing price growth. These decisions are made in anticipation of a potential housing correction of 9% to 18% reduction in property values. While these decisions are well within CMHC's authorities under the National Housing Act, they must continue to monitor market conditions closely and work with their federal colleagues on potential "macro-prudential policy options". (read the press release here).
It's a tough sell
While the move makes it tougher (and tougher) for borrowers to get into the housing market, it also would make it harder and riskier for borrowers who offer down payments of less than 20 percent to access CMHC's default mortgage insurance. Despite the lackluster (in some areas) home sales, it hasn't diminished property values as projected as the supply and -demand rule prevails. Prices have continued to rise, in some areas, as listings have fallen off alongside demand.
Not to panic
While the pandemic started out as a health crisis, it is metastasizing into a debt "situation" that could end up leaving potentially hundreds of thousands if not millions of Canadians in a financial catastrophe. Prior to the pandemic, Canadians were already accumulating debt because their cost of living was outpacing their income. The pandemic just brought it all to the forefront and exposed it and laid it bare at a much quicker pace. But how do we address it when jobs are halted or non-existent and the credit is maxed out and the income is sparse?
Home owners with equity in their homes have respite in that they can refinance and use the equity in their homes to refinance their debt. It doesn't matter if these home owners do not have a job a the moment. As long as they have equity in their home, they can be refinanced to consolidate their debt into one low payment a month. Consolidate debt into one low manageable payment a month helps streamline cash flow and eases financial burdens. But this is only a stop gap measure, an interim measure, a band-aid, a temporary solution. Ultimately, a source of income must prevail as even if a consumer proposal is invoked (which should always be your LAST resort), it too, needs to be repaid.
At Boss Mortgages TMC there is always a solution. If you own your own home, are in financial trouble and need answers, give us a call. We are here to help. You have questions, we have answers. 519-755-1904 Elizabeth@BossMortgages.ca