| Q1 |
What are the new product's features? |
| A1 |
CMHC's new Flex Down product is available for mortgage loans
between 90.01% and 95% LTV inclusive. A borrower can use any
source of downpayment that is arm's length to and not tied to
the purchase or sale of the property. The permitted sources
are:
- Lender cash back incentives or loans;
- Equity borrowed from any source that is arm's length to
the property purchase or sale transaction and not tied to
the purchase or sale of the property. This includes personal
loans, lines of credit or credit cards;
- Gifts or grants from any party that is arm's length to
the property purchase or sale transaction; and
- 100% sweat equity from either the borrower or contributed
by another party that is arm's length to the property purchase
or sale transaction.
Sources that are not permitted include:
- Builder incentives or loans;
- Realtor or mortgage broker incentives or loans to the
borrower that impact the property selling price;
- Loans or gifts from the property vendor;
- Rent to own payments that are not in excess of the current
market rent; and
- Third parties that receive payment from the vendor or
builder.
|
| Q2 |
What are the due diligence requirements for lenders relating
to source of downpayment? |
| A2 |
Lenders are expected to confirm and document that the borrower's
source of equity did not come directly or indirectly from a
prohibited source. If the source of equity is a loan, the lender
should ensure that the loan is included in the TDS calculation.
In some cases, borrowers receive gift downpayments from organizations
that are funded in whole or in part by donations from builders,
realtors or others. If the equity is a gift from a source that
is not an immediate relative, the lender should confirm that
the borrower was not required to purchase a specific property
or select from a specific group of properties in order to obtain
that gift. |
| Q3 |
What are the differences between this product and CMHC's
traditional 95% LTV product? |
| A3 |
The Flex Down product allows the borrower more sources to
obtain their minimum 5% downpayment. If a Flex Down source is
used, the premium is 3.40%, which is only 0.15% higher than
the traditional 95% premium. To access the product, the emili
borrower model is more stringent than the model used for traditional
95% LTV applications. Borrowers must have a minimum Beacon Score
of 680. When the application has two borrowers, the Beacon Score
for both borrowers is averaged and the average must be at least
680.
Unlike the traditional 95% product, Flex Down does not permit
properties secured by a chattel mortgage or personal property
security registration as well as properties on reserve without
a Ministerial Loan Guarantee.
All other underwriting criteria and product features are the
same as CMHC's traditional
95% product. |
| Q4 |
Are there any restrictions with respect to security position
of the Flex Down mortgage? |
| A4 |
The Flex Down loan must be secured by a mortgage registered
and maintained in first
priority position. |
| Q5 |
Can a lender's cash back incentive be added to the mortgage
charge? |
| A5 |
Recovery of any lender cash back incentive must be done through
the interest rate and not through a cash back repayment provision.
As with all CMHC insured mortgages, penalties cannot be capitalized. |
| Q6 |
If a borrower has been approved for CMHC's traditional
95% product but the loan has not yet been advanced, can they
switch to the Flex Down product? |
| A6 |
If the original approved loan has not been advanced, the lender
can resubmit the
application and select "Yes" in the new Flex Down
Indicator. The application will be
rerisked by emili and the borrower must meet the Flex Down minimum
Beacon Score
requirement.
If the resubmitted application does not qualify under Flex Down,
the lender must
resubmit again for processing as a traditional 95% application. |
| Q7 |
All else being equal, would a borrower who has at least
a 680 Beacon Score and who is approved for the traditional 95%
also be eligible for the Flex Down product? |
| A7 |
If this is the sole borrower on the application, he or she
would also qualify for the Flex
Down product in these circumstances.
There may be a difference, however, if there is a second borrower
on the application.
When the application has two borrowers, the Beacon Scores for
both borrowers are
averaged and the average must be at least 680 to qualify for
the Flex Down product. |
| Q8 |
What are the benefits of the Flex Down product? |
| A8 |
Saving a downpayment can be a barrier to homeownership for
some consumers. With the new Flex Down product, qualified borrowers
have the option of purchasing a home before they have saved
the traditional 5% minimum downpayment. As a result, CMHC's
Flex Down product opens up a new market to lenders.
Lenders also have choice in designing their own suite of products
within CMHC's product requirements. The lender's suite of products
might include a combination of cash back equity, personal loan
packages or other promotions.
In addition, CMHC's product is, to a large extent, consistent
with the traditional 95% LTV product, which makes it easier
for lenders to understand and implement. |
| Q9 |
Can the insurance on the Flex Down mortgage be switched
from one Approved Lender to another? |
| A9 |
Yes, like any other CMHC insured mortgage, if the borrower
transfers/switches their CMHC insured mortgage to another Approved
Lender, the mortgage insurance is also transferred. |
| Q10 |
Can a Flex Down product mortgage be converted to a Line
of Credit (LOC)? |
| A10 |
Once the Flex Down loan balance is below 90%, an Approved
Lender can submit an application to convert it to a LOC. The
applicant must qualify at the time of conversion. Note, if the
risk associated with the loan has increased, it may not qualify
for the LOC product.
For the 5/20 LOC repayment option, the Flex Down product must
be converted within the first 4 years. For the 10/15 LOC repayment
option, it must be converted within the first 9 years of the
Flex Down mortgage's closing date.
Consistent with conversion of all mortgages to insured LOCs,
the LOC surcharge would be applied to the current balance.
If additional funds are requested at the time of conversion,
in addition to the LOC surcharge applied to the outstanding
balance, the top up premium plus surcharge is applied to the
new funds. For example:
- The original Flex Down mortgage was insured by CMHC for
$100,000.
- The borrower applies to convert to a LOC on the 10/15
option and top up
by $12,000.
- At the time of the conversion the Flex Down mortgage's
outstanding balance
is $88,000 and the lending value is $117,700.
- The $12,000 top up brings the LOC limit to $100,000 and
the LTV to 85%.
|
Premium calculation from
column A:
|
Premium calculation from
column B:
|
(1.75% + 0.50% surcharge) * $100,000
= $2,250 |
(3.50% + 0.50% surcharge * $12,000)
= $480
+ (0.50% surcharge * $88,000) =
$440
Total = $920 |
Therefore the premium is $920. |
| Q11 |
Why is a borrower who is approved for a LOC not automatically
approved for a Flex Down mortgage? |
| A11 |
With CMHC's LOC product, the maximum LTV is 90%. The Flex
Down product only applies to LTVs between 90.01% and 95% inclusive.
Therefore with LOC, borrowers must have at least 10% downpayment
from their own resources. |
| Q12 |
Are there any new emili data elements associated with the
Flex Down product? |
| A12 |
One new data element "Flexible Downpayment Option"
has been created for this product. The options are Y or N. As
with all new product roll-outs, CMHC is working with mainframe
lenders to facilitate the required changes. This new indicator
will be available on emiliWEB effective March 1, 2004. |
| Q13 |
A borrower already has the minimum required 5% downpayment
from his/her own resources, and adds more equity from one of
the new sources permitted under Flex Down. Is this submitted
as a Flex Down application? |
| A13 |
The Flex Down product only applies where the borrower is using
non-traditional sources of equity for the minimum 5% downpayment.
Where a borrower has the minimum 5% from his/her own resources,
he/she should apply for CMHC's traditional 95% product, which
has a lower premium than the Flex Down product. |
| Q14 |
Can a Flex Down loan be ported or refinanced? |
| A14 |
CMHC Mortgage Loan Insurance under the Flex Down product can
be ported to a new property subject to current portability policy
requirements and premiums. These applications are not submitted
as Flex Down loans.
Once a Flex Down loan is repaid below 90% LTV, the borrower
may also apply to add funds to the insured mortgage. These applications
would be subject to CMHC's current Refinance policy requirements
and premiums. |
