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Canada's Minister of Finance announces mortgage insurance changes

Canada's Minister of Finance on Oct. 3 announced severalchanges to mortgage insurance rules designed to reinforce the Canadian housingfinance system.

The finance minister said thegovernment will bring more consistency to mortgage insurance rules bystandardizing eligibility criteria for high- and low-ratio insured mortgages,including a mortgage rate stress test. It will seek to improve tax fairness byclosing loopholes surrounding the capital gains tax exemption on the sale of aprincipal residence, and it will consult on how to better protect taxpayers byensuring that the distribution of risk in the housing finance system isbalanced.

The government announced that itwill apply a mortgage rate stress test to all insured mortgages, effective Oct.17, and changes will be made to low-ratio mortgage insurance eligibilityrequirements, effective Nov. 30.

Genworth MI Canada Inc. said Oct. 4 that more thanone-third of transactionally insured mortgages, predominantly for first-timehomebuyers, would have difficulty meeting the required debt service ratios, andhomebuyers would need to consider buying a lower-priced property or increasingthe size of their down payment. The company said approximately 50% to 55% ofits total portfolio of new insurance written would no longer be eligible formortgage insurance under the new low-ratio mortgage insurance requirements.

Genworth MI Canada said that anyimpact on future premiums written may be partly offset by premium rateincreases in response to the higher capital requirements resulting from theOffice of the Superintendent of Financial Institutions' advisory released Sept. 23.

The government also announced thatit is reviewing the distribution of risk in the housing finance framework. Thegovernment is launching a public consultation process on the subject, andGenworth MI Canada said it will participate in the critical discussions asrequired. The company said it is too early to comment on the potential impactof the process and its outcome.