Monday Market Minute | May 18, 2020

CMHC tightens insured mortgage rules — a contrarian move that rattles the housing sector

What Moved

In a move that surprised the market, CMHC announced tighter qualifying rules for insured mortgages effective June 1. The changes raised the minimum credit score from 600 to 680, limited the gross debt service ratio to 35%, and prohibited non-traditional down payment sources. CMHC CEO Evan Siddall warned publicly that Canadian housing prices could fall 9-18% over the next 12 months. The announcement clashed with the BoC's accommodative stance and created confusion in the lending industry. Genworth and Canada Guaranty, the private insurers, did not follow CMHC's lead.

Why It Matters

For MIC lenders and private mortgage originators, CMHC's tightening created a bifurcated market. Borrowers who could not meet the new insured criteria were pushed toward conventional and private lending channels. This expanded the addressable market for private lenders — but with borrowers who, by definition, carried higher risk profiles. The divergence between CMHC and private insurers meant that market access depended on the insurance provider, adding complexity to the underwriting process.

Signal to Watch

Monitor whether Genworth and Canada Guaranty maintained their current standards or eventually aligned with CMHC. Divergence would entrench the two-tier dynamic.

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