cmhc Archives - Ira SmithTrustee & Receiver Inc.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Mortgage deferral Canada introduction

The bulk of the home mortgage deferral Canada that banks have given to Canadians was approved in March and April. This was the time when the COVID-19 pandemic began taking a financial toll on the country with non-essential businesses shuttered and millions unemployed or seeing their earnings take a deep cut.

The Office of the Superintendent of Financial Institutions (OSFI) proposed actions planned to support federally regulated lenders to make sure that they would not experience problems due to the mortgage deferrals provided to help Canadians. The OSFI mortgage deferral help it provided to the lending institutions enhanced the security of the Canadian economic situation and monetary system when faced with obstacles postured by the coronavirus.

The mortgage deferrals are slowly coming to an end. This Brandon’s Blog discusses what you can do if you fear what your personal fallout will be when the mortgage deferrals end.

**How did mortgage deferral Canada work for the borrower?**

As of July 30, there were approximately $170 billion in mortgage deferments for the biggest 6 banks. The majority were established to unwind by September 30. Mortgage deferral Canada arrangements between Canadians and their financial institutions were truly an individual conversation. The federal government provided a wide overview, yet the specific arrangements between each borrower and lender were established individually as each case required. The significant style was that if a customer was struggling with financial difficulty because of the COVID-19 lockdown, mortgage payments would be deferred for an agreed-on, short-term amount of time.

Currently, these mortgage deferral Canada setups are slowly ending. The chartered banks are reporting that currently, for those whose deferments have ended, 80% to 90% are current in their payments. That means 10% to 20% of people who had a mortgage deferral Canada deal currently cannot maintain their mortgage payments.

**How did mortgage deferral Canada work for the lenders?**

OSFI told the federally regulated lending institutions and mortgage insurers they can deal with home mortgage financings for which a payment deferment is approved as being current. Payment deferments of as much as 6 months approved prior to August 31 and repayment deferments of up to 3 months approved after August 30 and on or before September 30 that it need not categorize such mortgages as impaired or revamped.

In April OSFI advised lenders that in circumstances where banks provide home mortgage repayment deferrals, those mortgages can continue to be dealt with as performing loans under the . Consequently, OSFI told the banks they did not need to increase their capital resource requirements based upon the home mortgage deferral Canada arrangements they provided. OSFI additionally told the loan providers that it would not assess such mortgage portfolios as having a larger credit risk.

For all federally regulated banks, OSFI specified that it is prepared to use flexibility for any that might need additional time to satisfy upcoming due dates for filing regulatory returns, on a case-by-case basis.

Where mortgages need to be insured due to being high ratio, there are insurance coverage costs that the lending institutions need to make to the insurer each month. OSFI likewise aided the banks and insurers, such as CMHC, by stating that it will not place the lenders or insurers offside when the monthly insurance premiums were not being paid as a result of the mortgage deferral Canada arrangements. OSFI also stated that deferments will not boost capital charges on unpaid premiums. OSFI told insurance providers that they can deal with a mortgage for which a deferment is granted as performing.

So with these OSFI initiatives, lenders can make mortgage deferral Canada happen and both lenders and mortgage insurance providers can treat the mortgages under these deferred home mortgage settlements and mortgage insurance payments, as not being in default.

Mortgage deferral Canada is ending – what can you do if you believe it will cause financial problems for you

OSFI has just stated that any type of mortgage deferral Canada plans past September 30, 2020, will now be subject to OSFI’s typical policies. People who need to start making their mortgage payments once again, but whose economic situation has not improved since the pandemic hit, are scared. I have read some “what to do” articles if you think you will have trouble making your normal mortgage payments. In my view, several have actually missed the mark. Some I have checked out start explaining how a consumer proposal or bankruptcy can help you.

Just so you know, a consumer proposal or bankruptcy cannot help you with the end of your mortgage deferral Canada. The reason it cannot help you is that your mortgage is a secured debt. Your mortgagee is a secured creditor, assuming its mortgage security is valid. A consumer proposal or bankruptcy is a method of dealing with your unsecured creditors. The mortgagee has rights if you default on your mortgage whether or not you are involved in a formal insolvency process. If you have too much debt and too little income to service all that debt, you may very well need to consider an insolvency filing. But it is not a direct answer to your mortgage deferral Canada ending.

mortgage deferral canada

So in order, here are my 3 top recommendations of what you could do when your mortgage deferral Canada deal with your lender ends and you believe you will be in financial trouble.

Take a critical look at your family household budget

I cannot emphasize enough just how essential the household budget is to your financial security. A spending plan is a listing of all income and your families’ costs. Do it on a monthly basis. It enables you to prepare how you need to spend your money and if there is anything left over each month for savings for an emergency fund or for investment. Rather than cash just flying out of your pocketbook, you make intentional choices on where you want your cash to go. You’ll never need to doubt at the end of the month where your money went or search for a hole in your wallet.

Numerous Canadians panic every month regarding where the cash will come from to pay their bills. A household budget will give you the direction you need. That direction should give you comfort. It reveals to you just how much you make and also what your costs are. If need be you can decrease unneeded costs or possibly tackle extra work to live within a well-balanced budget plan. No extra panicking at the end of the month.

So if you have a household budget that you follow, look at it carefully. If you don’t’ have one, prepare it immediately. Look at the last 6 months and see what your average monthly income has been and what your average monthly expenses were. List them all out line by line for both income and expenses. Then adjust any line that you believe will change in the coming months. Adding your normal monthly mortgage payment is one of those things that will need to be added.

Then take a look at it and see if you are spending less or more than you earn. If you are spending more, then you need to cut back on certain expenses, increase your income, or a combination of both. Take a critical look and slash any expenses that you can. Then see what that looks like.

If you feel that making your normal monthly mortgage payment will not be a problem, then terrific. Just follow your family budget and each month compare your actual to budget. Make any adjustments you need to along the way. However, keep spending less than you earn.

If your budget shows that you are going to have trouble making your normal monthly mortgage payment, then go on to my next step 2.

Speak to your banker

Get ahead of it. Contact your lender. Let them know that you have a current family budget and it shows that you may need added help when your mortgage deferral Canada deal ends. Your banker will be impressed that you:

have a current budget that you are tracking; and
you are being proactive and not causing the banker to chase you because you came up on the computer screen as a delinquent mortgagor.

That already makes you the most liked person in the 10% to 20% of people who are experiencing problems paying their mortgage. Hopefully, your lender can work something out for you that will help you.

Call me

If your budget shows that you do not have enough family income to pay all the families’ debts on a monthly basis and your lender cannot do anything to help you, then call me. I will take a critical look at your family budget and get more personal financial details from you. After reviewing all of it, I will give you my best recommendations to meet your unique financial challenges. Keep in mind that this is not your fault. The COVID-19 pandemic and the resulting shutdown of the Canadian economy continues to cause problems for the majority of Canadians.

Mention this blog, and I will not charge you a penny for this help. I truly want you to succeed.

Mortgage deferral Canada summary

I hope you have found this mortgage deferral Canada Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

The Ira Smith Trustee Team wishes all of our Canadian readers a healthy, happy and safe Canada Day.

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast.

CMHC Insurance introduction

CMHC insurance is helping to stabilize Canada’s economic system as well as sustain the financial health of families during the COVID-19 pandemic. Effective July 1, 2020, CMHC insurance rules are changing. It will affect the cost of real estate in Canada. It is also designed to minimize risks to CMHC and therefore the Canadian economy.

I describe what those changes are and why they are being made in this Brandon’s Blog.

What is CMHC Insurance?

In simple terms, CMHC insurance is insurance provided to mortgage lenders to protect them in case of mortgage defaults. If the lender needs to sell the home and suffers a loss, CMHC insurance pays off the lender to cover that loss.

CMHC insurance allows lenders to continue making mortgage loans at reasonable interest rates to those people who would not otherwise qualify. At the present time, the down payment required to get CMHC insurance is only 5 percent of the purchase price. One of the changes that I describe below, is that it will rise to 10 percent.

How Much Is CMHC Insurance

Like any other insurance product, there are CMHC insurance premiums. The mortgage lender pays the insurance costs. It is determined by taking into account the size of your mortgage and the amount of your down payment. The lending institution passes this cost on to the borrower. It can be paid as a lump sum or included in the mortgage which obviously affects the mortgage payments.

Here is a link to the CMHC insurance page where you can use the CMHC insurance premium calculator. This will allow you to calculate your potential mortgage insurance premium rates.

CMHC And The COVID-19 Pandemic Response

Early on, in coordinated action with the Bank of Canada and with Finance, CMHC relaunched a program to make certain that financial institutions have access to term financing. The reason is so mortgage lenders can have the necessary liquidity to continue to offer mortgage financing. This ensures that the mortgage market and therefore the real estate markets remain functional.

Under the program, the Canadian government can buy up to $150 billion of insured home mortgages. They are also prepared to increase the issuance of traditional securitization programs, as needed.

On top of that, CMHC acted quickly to assist Canadians who are having difficulty paying their home mortgage as a result of the coronavirus pandemic. Acting with Genworth Financial Canada and Canada Guaranty, CMHC is using short-term deferral of mortgage payments for up to 6 months to help Canadian homeowners. CMHC believes that about 12 percent of homeowners have elected to postpone repayments until now. This number may in fact grow depending on what happens with job recalls and government support programs this Fall.

The same mortgage deferral is offered to multi-unit real estate owners in order to accommodate the loss of rental income. As well CMHC has taken actions to guarantee that charitable, as well as co-operative housing service providers, remain able to get government rent subsidies. CMHC is urging recipients of federal assistance to refrain from evictions during the COVID-19 pandemic.

Almost everything CMHC insurance has done in response to the COVID-19 situation talks about allowing Canadians to borrow. The federal government is taking on more financial debt to fund COVID-19 support programs. Mortgage deferments are adding to already historically high household debt.

CMHC Insurance guidelines

Canadians are amongst the global leaders in household financial debt. Pre-COVID-19, the proportion of gross financial debt to GDP for Canada went to 99 percent. This is due to not only more borrowing, but also declining GDP. CMHC estimates that it could go to over 115 percent in Q2 2020 and get to 130 percent in Q3, before decreasing. At those levels, GDP growth is choked off.

CMHC is now forecasting a decline in average real estate prices between 9 to 18 percent in the coming 12 months. The resulting mix of greater mortgage debt, declining home prices as well as increased unemployment is the reason CMHC takes issue for Canada’s longer-term financial security.

CMHC is trying to figure out how to handle expanding mortgage debt “deferral high cliff” that looms in the autumn when some jobless people will need to start paying their home mortgages once more. As long as one-fifth of all home mortgages could be delinquent if Canada’s economic situation has not adequately recuperated.

CMHC insurance feels a responsibility to prevent enhanced losses that arise from dropping real estate prices. CMHC believes that if it does not act, a first-time buyer looking to buy a $600,000 house with a 5 percent down payment stands to lose over $90,000 of value on their $30,000 financial investment if rates fall by 10 percent. In contrast, a 10 percent down payment provides more of a cushion.

CMHC insurance will be expected to cover losses if properties need to be sold. For these reasons, CMHC is evaluating whether it needs to alter its underwriting because of its assessment of future market conditions.

CMHC Insurance rules are changing

CMHC says that its support for homeownership cannot be endless. Canadians believe that owning a home is crucial for retirement savings. Over the past 20 years, the typical Canadian homeowner has had a tax-free gain of $340,000 from their house. CMHC believes that house prices and the resulting mortgage debt levels are significantly unreachable for first-time buyers.

Effective July 1, 2020, CMHC insurance is changing its insurance underwriting for all new applications. The changes are:

limiting the Gross/Total Debt Servicing (GDS/TDS) proportions. The test will allow for 35% of gross income to be spent on housing. It will also only allow total borrowing costs to be 42% of gross income.
requiring a credit rating a minimum of 680 for at least one borrower; and
non-traditional sources for a down payment that is from borrowed funds will no longer be counted as equity for insurance purposes.

CMHC has also taken another action to further handle the risk to the CMHC insurance business, as well as inevitably Canadian taxpayers. During this uncertain time, CMHC has put on hold mortgage insurance coverage for refinancing, unless the funds are used for repair work or reinvestment in the real estate. While making this decision on multi-unit properties requiring CMCH insurance, they have not yet figured out what is going to happen when these mortgages cannot be renewed without CMHC insurance.

CMHC insurance says that COVID-19 has subjected enduring vulnerabilities in Canadian financial markets. It believes that its actions will safeguard home purchasers, minimize government and taxpayer risk as well as sustain the stability of real estate markets.

These new requirements will certainly curtail demand amongst the general Canadian population. The new CMHC insurance rules will also lower the number of people qualifying. One thing CMHC barely mentions, other than for language about saving Canadian taxpayers from losses, is that it will slow down the growth in the portfolio of CMHC insurance provided mortgages. This is what it really is all about.

CMHC Insurance rules summary

I hope you have found the CMHC insurance Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

The Ira Smith Trustee Team wishes all of our Canadian readers a healthy, happy and safe Canada Day.