New CMHC Rules

Finance Minister Jim Flaherty outlined new rules effecting CMHC

• Maximum amortization is 25 years
• Maximum refinance LTV is 80%
• Maximum GDS is 39% and TDS is 44%
• Maximum purchase price is $1 million

 The changes will become effective July 9, 2012.  (real deals must be approved by this date)

Discussion:  The reduction in amortization combined with the lowered GDS ratio could affect a number of people’s ability to qualify.  It will also decrease their desire to buy.  Historically, the TDS of TNM clients is around 32%.  However, 5% of clients do have 40+ GDS.

We do very few refinances at 85% and thus this will have virtually no effect on us.  I imagine this is true for the entire indusrty.

The maximum purchase of $1 million could be the largest hindrance to the market.  Due to the reduced ability of clients to get financing on these more pricey homes we will likely see a drop in those home values.  Furthermore, lenders will be very hesitant to go to 80% for fear of the loss of liquidity in the higher end market.  I would imagine that lenders will place a self-imposed 75% LTV cap on the larger mortgage sizes.

Regards,