Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance to developers to finance the construction of new condo buildings.
The Crown corporation has not actually provided any of the controversial insurance since 2011, but is now officially removing the product. It was controversial because the insurance made it easier for condo developers to finance new projects, but the Bank of Canada and economists have been warning that there’s a risk too many new condos are being built in cities like Toronto.
CMHC said that, as of the end of March, it still had $378-million worth of mortgage insurance for the financing of condo construction on its books, from when it was still offering the product.
The changes apply only to mortgage insurance on loans to developers, not to individual condo buyers.
The change is part of a review that the Crown corporation has been doing to ensure that it’s not taking on too much risk. The federal government has been seeking to rein in the amount of exposure that CMHC has been racking up to Canada’s housing market. Taxpayers backstop, or guarantee, CMHC’s business.
CMHC also said that it is tightening up its standards for homeowners who have a down-payment of more than 20 per cent.
Mortgage insurance is only mandatory when a federally-regulated lender sells a mortgage to someone who has a down-payment of less than 20 per cent. But sometimes banks will also buy insurance to cover individual low loan-to-value mortgages, those that do not have to be insured. From now on, in those instances, the mortgage will still have to meet certain requirements that high loan-to-value mortgages must already meet to be insured: the house must have been bought for $1-million or less, the mortgage must have an amortization of 25 years or less, and the borrower must meet certain debt servicing tests.
Neither of CMHC’s private-sector competitors, Genworth MI Canada and Canada Guaranty, currently sell mortgage insurance for condo construction financing.
Mortgage insurance is designed to pay back the lender, or bank, if the borrower defaults on their loan or mortgage.