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[LENDER UPDATE] Underwriting Policy Clarification

LENDER UPDATE
Underwriting Policy Clarification
(Download Update)


Canada Guaranty confirms that no changes to underwriting policy are contemplated as a result of recent industry announcements.

Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns. This philosophy has resulted in the lowest loss ratio in the industry. Recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas. Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.

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Please do not hesitate to contact a member of our National Accounts team with any questions.

Thank you,

Mary Putnam
Vice President, Sales and Marketing
Canada Guaranty Mortgage Insurance Company

Telephone: 416.640.8936
Toll Free: 866.414.9109 ext. 8936
E-mail: mary.putnam@canadaguaranty.ca

announced a new benchmark rate that will apply to all insured mortgages effective April 6, 2020.

 

 

§  The weekly median 5-year fixed insured mortgage rate will be calculated by the Bank of Canada (“BOC”) from federally-backed mortgage insurance applications adjudicated by mortgage insurers; plus a buffer of 200 basis points, to be set by the Minister of Finance.

 

§  The weekly BOC benchmark rate will be published on a Wednesday (www.bankofcanada.ca/rates/daily-digest/) and will come into effect at 12:01 a.m. the following Monday.

 

For mortgage insurance qualification purposes, all insured homebuyers must qualify for mortgage financing using an interest rate that is the greater of the contract mortgage rate or the Bank of Canada benchmark rate (i.e., the Bank of Canada’s median 5-year fixed insured mortgage rate plus 2% buffer). Below, please find additional clarity regarding the application of the benchmark rate:

 

§  All new mortgage applications submitted for insurance are subject to the qualifying interest rate in effect as of the date of submission.

 

§  Applications for mortgage insurance approved prior to the rate increase are still valid and do not require resubmission to reflect the rate change.

 

§  If the mortgage insurance application is received after the effective date of the new benchmark rate, the previous lower benchmark rate can be used, provided the lender made a legally binding commitment to make the loan to the borrower prior to the effective date of the benchmark rate change.

 

As a reminder, Canada Guaranty’s Vantage underwriting system will be updated to reflect the new BOC benchmark rate for qualification purposes. As a result, Lenders must continue to submit the contract rate for the loan upon submission of the mortgage insurance application.

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