March 20, 2020 – Ottawa, Ontario – Department of Finance Canada
The Government of Canada is taking immediate and significant action to support Canadian individuals and businesses facing financial hardship as a result of the economic impacts of the global COVID-19 outbreak.
Today, Minister of Finance Bill Morneau announced amendments to mortgage insurance eligibility criteria, set out in regulations made under the National Housing Act and Protection of Residential Mortgage or Hypothecary Insurance Act. These changes will help provide stable funding and liquidity to financial institutions and mortgage lenders and support continued lending to Canadian businesses and consumers.
This announcement is in support of Canada Mortgage and Housing Corporation’s (CMHC) March 16, 2020 launch of a $50 billion Insured Mortgage Purchase Program (IMPP) and CMHC’s March 20, 2020 announcement on program details. The amendments allow mortgage lenders to pool previously uninsured mortgages into National Housing Act Mortgage-Backed Securities (NHA MBS) for CMHC to purchase these securities through the IMPP. The impact of this measure will provide financial institutions with more liquidity. This, in turn, will allow financial institutions to continue lending to businesses as well as individuals, while assisting customers who face hardship and need flexibility, on a case by case basis.
This program builds on other measures announced by the government and Bank of Canada to support liquidity and credit to businesses and borrowers in these extraordinary times. These actions are an important part of Canada’s COVID-19 Economic Response Plan.
To complement the IMPP, the Minister of Finance is announcing today that the eligibility criteria for portfolio insurance are being temporarily relaxed to help mortgage lenders access the IMPP. This will allow previously uninsured mortgage loans that were funded before March 20, 2020, to be eligible for mortgage insurance and to be included in future NHA MBS issuance.
Effective March 24, 2020, the following low loan-to-value mortgages funded prior to the date of this announcement, March 20, 2020, are eligible for government-guaranteed insurance:
- Low loan-to-value mortgages with a maximum amortization term up to 30 years commencing from when the loan was funded.
- Low loan-to-value mortgages whose purpose includes the purchase of a property, subsequent renewal of such a loan, or refinancing.
All other eligibility criteria for government-guaranteed insurance will continue to apply to these mortgages. The above amendments will remain in force until December 31, 2020, at which time the eligibility criteria will revert to the existing rules. The Minister of Finance reserves the right to make amendments prior to this date, should circumstances change.
These changes will not apply to low loan-to-value mortgage loans funded on or after March 20, 2020. The other existing criteria which apply for transactional mortgage insurance will remain unchanged.
“These are extraordinary times and we are taking extraordinary measures. As a result of this measure, banks and lenders will have more liquidity—which, in turn, will enable them to work on a case by case basis with Canadian businesses and individuals who face hardship at this time. A co-ordinated approach is critical for making sure our economy remains strong and stable. The government will do whatever it takes to support Canadians and we are prepared to take further action as necessary to meet the challenges ahead.”
– Bill Morneau, Minister of Finance
Federal statutes require federally regulated lenders to obtain mortgage default insurance (“mortgage insurance”) for homebuyers who make a down payment of less than 20 per cent of the property purchase price, known as “high loan-to-value” or “high-ratio” insurance. Lenders also have the option to purchase mortgage insurance for homebuyers who make a down payment of at least 20 per cent of the property purchase price, known as “low-ratio” insurance because the loan amounts are generally low in relation to the value of the home.
Under the IMPP, CMHC will purchase insured mortgages in the form of National Housing Act Mortgage-Backed Securities—a securitization product that pools insured mortgages for resale as marketable securities.
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