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CMHC Questions and Answers
Elimination of Homeowner Price Ceilings
Frequently Asked Questions
September 4, 2003
Question 1.
Why is CMHC removing price ceilings at this time?
Answer:
In 1992, CMHC introduced the First Home Loan Insurance (FHLI) program. Under the program, first time home buyers were eligible to apply for CMHC mortgage insurance with a downpayment as low as 5 %. Maximum house price ceilings were included as a condition of the initial 95 % pilot program. In 1998, the FHLI program was permanently introduced as CMHC's 95 % Financing product and while the restriction to first time home buyers was removed, price ceilings were kept as a condition of the product.
The introduction of emili, CMHC's automated risking system, has made the application process for mortgage loan insurance faster and the risk assessment of applications more effective. The experience CMHC has gained through the use of emili has enabled us to respond to the changing needs of today's competitive housing market and to remove price ceilings.
Question 2.
Who is going to benefit from the removal of price ceilings?
Answer:
Canadian consumers will now have a wider range of housing and financing options. Consumers meeting CMHC's mortgage loan insurance eligibility requirements will now, more than ever, be able to purchase the home of their choice, in all areas of Canada, with a downpayment as low as 5 % with no price ceiling limitations.
The removal of price ceilings reaffirms CMHC as the market leader and streamlines administration for homebuyers and lenders alike.
Question 3.
Will the elimination of price ceilings encourage builders to build more expensive homes or lead to increases in home prices?
Answer:
There is no evidence to suggest that price ceilings affect home prices. Prices for homes will continue to be determined by the marketplace and consumer demand.
Question 4.
Will the removal of price ceilings have any impact on other products offered by CMHC?
Answer:
Price ceilings have always only applied to loans with a loan to value (LTV) ratio greater than 90 %. As a result, the removal of price ceilings will not impact any of CMHC's current products with LTV's up to 90 %.
Question 5.
When can lenders expect new CMHC publication material to reflect this policy change?
Answer:
CMHC's website has been updated to reflect the elimination of CMHC's price ceilings. All other impacted CMHC publication material will be updated over time to reflect this important policy change.
Question 6.
Why is there a two week delay between the announcement of the price ceiling policy change and the effective date?
Answer:
CMHC routinely announces price ceiling changes without prior notice and Approved Lenders have never indicated that this process has had a negative impact on their operations. Nonetheless, the two week period between the announcement date and the effective date is designed to allow lenders time to make any necessary internal adjustments, including staff communication. During the two week notice period, CMHC will process mortgage loan insurance applications with a LTV above 90 % without a price ceiling, as long as the closing date is on or after September 22, 2003.
Question 7.
Does the removal of price ceilings apply to all Canadian municipalities?
Answer:
Yes. All homeowner mortgage loan insurance applications to be fully funded (as identified by "Closing Date") on or after September 22, 2003, are eligible for this policy change, in all municipalities
in Canada.
Question 8.
If a borrower has already signed their mortgage documents, but the mortgage has not been advanced and he/she decides to reduce their downpayment, do the mortgage documents have to be changed?
Answer:
Should a borrower wish to reduce their downpayment to less than 10 %, the lender must follow the standard process and resubmit the application to CMHC for approval based on a lower downpayment.
If the change is approved, lenders will have to follow their own usual internal practices with respect to mortgage documents. This would be no different from when a borrower wants to change other significant mortgage parameters (e.g. change in amortization period).
Question 9.
Does a borrower have to wait until after September 22, 2003, to have their loan application processed?
Answer:
No. CMHC will accept mortgage loan insurance applications without price ceiling limits during the two week notice period. However, to benefit from this policy change, all eligible loans must have a closing date on or after September 22, 2003.
Question 10.
If a borrower's mortgage hasn't closed yet, can the downpayment be reduced from 10% to 5% to benefit from the elimination of the price ceilings?
Answer:
Yes. The elimination of the price ceilings applies to all LTV ratios greater than 90 % with closing dates on or after September 22, 2003. Should a borrower wish to benefit from this policy change, the lender must follow the normal process and resubmit the application to CMHC for consideration under the current Homeowner underwriting guidelines.
Question 11.
If a lender resubmits an application for mortgage insurance to CMHC because a borrower wishes to reduce their downpayment, can it be declined?
Answer:
Should a borrower wish to benefit (e.g. reduce their downpayment to less than 10 %) from this policy change, the application must follow the normal process and be resubmitted to CMHC. A change in downpayment represents a significant change in the risk associated with a loan. As a result, CMHC must complete a full loan reassessment. In some cases, loan approval may not be possible at a higher LTV or additional risk mitigating actions may be required.
Question 12.
A borrower has a partially advanced 90 % LTV progress advance mortgage. If the value of the home was over the applicable price ceiling prior to this announcement, can the borrower now reapply to increase their LTV to 95 %?
Answer:
Yes. For CMHC insured loans closing on or after September 22, 2003, lenders can resubmit an application with a lower downpayment should their borrower so desire. However, as per normal processing requirements, the application must be reassessed by CMHC. In some cases, at the higher LTV, loan approval may not be possible or additional risk mitigating actions may be required.
Question 13.
Why is a borrower with a mortgage advanced before September 22, 2003 restricted by CMHC's maximum house price ceilings?
Answer:
CMHC policy changes are not retroactive. Loans fully funded prior to September 22, 2003, were subject to the policy in place at the time.
Question 14.
A borrower's mortgage was advanced five months ago. The borrower is now in the process of moving and he/she wants to port his/her existing mortgage to the new property and wonders how the elimination of price ceilings affects them?
Answer:
CMHC's portability feature allows repeat users of CMHC homeowner loan insurance to save money by reducing or eliminating the premium on a new insured loan for the purchase of a subsequent home.
The maximum loan to value ratio for portability and top up financing is usually limited to 90 %. The elimination of price ceilings therefore does not impact loans with LTV equal to or less than 90%.
The only loans to be ported that would be affected by the removal of price ceilings are those where the original LTV ratio was between 90.01 % and 95 %. CMHC would consider porting these applications on a case by case basis depending on their strength. For these applications, the new loan will no longer be subject to CMHC's maximum house price restrictions.
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