RateSpy, Scotiabank decry CMHC mortgage qualification adjustments

The timing of the changes is particularly confounding

RateSpy, Scotiabank decry CMHC mortgage qualification adjustments

Industry players and observers have questioned the Canada Mortgage and Housing Corporation’s decision to tighten mortgage qualification rules for high-risk borrowers.

As of July 1, prospective borrowers will need a minimum credit score of 680.

“Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes,” CMHC said in its announcement late last week. “We have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.”

While CMHC President and CEO Evan Siddall said that these steps are vital in addressing severe vulnerabilities, analysts said that the policy adjustment came at a bad time considering that the impact of economic volatility on the housing market is expected to last well into 2021.

“The biggest risk is the hit to market psychology due to the timing,” said Rob McLister, founder of RateSpy.com. “Regulators usually make such changes when times are good, not when housing is teetering on the edge.”

Commentators also pointed to the possible domino effect upon the national economy.

“On the surface, it is remarkably poorly timed,” said Jean-Francois Perrault, chief economist at Bank of Nova Scotia. “Restricting access to credit in a period of economic need is certainly an unconventional policy approach.”

“If the government proceeds with this, the dampening of housing activity will worsen the economic pressures, further impairing the economy,” economist Will Dunning told Bloomberg.