As many of you now know, there have been a multitude of changes recently announced by both the Government and the Insurers across different areas that will affect how we do our jobs.
The TMG Deal Centre has been in the process of reviewing these changes and we are providing some additional commentary to break down all the various announcements to provide some additional context. We have also attached the CMHC releases regarding the changes for your reference.

1. Qualifying Rate Changes: Starting April 19th all High Ratio Mortgages qualifying for terms less than 5 years and all variable rate mortgages must use the 5 yr benchmark rate.
The benchmark rate closely reflects the average 5-year posted rates charged by the Chartered Banks. The posted qualifying rate will be published by the Bank of Canada each Monday at approximately 12:01am Eastern Time. Here's the link: http://www.bankofcanada.ca/en/rates/interest-look.html. Once there, scroll down to series V121764 that will correspond to the 5 year Conventional mortgage. Check the first 5-year mortgage box, and then scroll back up and click "Get Rates" next to Quick date. Melissa will also be posting this rate on our rate sheet every Monday.
Here is an example to highlight the impact of this change:
Your client is looking for a pre-approval amount and wants to know what he could afford on a $100k/yr salary.
Based on 25 yr amortization, $75/mo heat, max ratios of 35%/44%:
-1,2,3 or 4 year fixed rate product or any ARM- qualification based on the benchmark of 5.39% = a mortgage of approx. $460,000.
-5 yr fixed - qualification based on the contract rate of 3.79% - approx. $540,000
The difference based on these variables alone is approx. $80,000 of mortgage.
In the past where terms less than 5 years may have assisted you in qualifying your clients for a required mortgage amount, the term that will likely qualify for the highest mortgage amount will now be the 5 year fixed rate mortgage. Those clients (as well as for terms greater than 5 years) will still be qualified at the contract rate for that term.

2. CMHC BFS (Business for Self) Changes: The CMHC Self Employed without Traditional Third Party Income is intended for self employed borrowers who cannot confirm income via a 2 year NOA average. Typically, these are borrowers who are newly self employed (and have 2 years experience in the same line of work) and are the target sector of CMHC's BFS program. Starting April 9th 2010, the following changes will apply to stated income (BFS) applications with CMHC:

-for purchase transactions, max LTV is being reduced from 95% to 90%
-for refinance applications, max LTV is being reduced from 90% to 85%
-Borrowers who have been BFS for more than 3 years will no longer be eligible for this program; these borrowers need to income qualify via a 2 yr average
-100% commission borrowers are no longer eligible for this program; these borrowers need to income qualify via a 2 yr average
-if the borrower has other income not related to their business, that income is eligible to be included as longer as it can be substantiated

3. Rental/Revenue Property Changes: Starting April 19th, the max LTV for the purchase, porting or refinance of 1 to 4 unit non-owner occupied investment properties will be 80%. 2nd homes should still be OK, but CMHC will no longer insure 2nd homes with more than one unit. The borrower or his/her relative must live in the property "at some point during the year" and on a "rent-free" basis. Lenders must confirm that this will be the borrower's intention.

4. Refinance of Owner Occupied Property: Reduced to 90% of the value of the property, down from 95%.

5. Rental Debt Servicing Changes: CMHC is changing how rental income is used in a borrower's debt service calculations (TDS formula). Effective April 19, 50% of the gross rental income from the subject property and other revenue property may be added to the borrower's gross annual income for the purposes of calculating the borrower's TDSR. An 80% rental offset will no longer be used past April 19th. Keep in mind this applies to CMHC high ratio mortgages only. Here is an example to highlight the impact of this change:

Your client is looking for a pre-approval and wants to know what he can afford. He currently owns his principal residence and a rental property. He is looking to upgrade his principal residence, with down payment from proceeds of sale of $75k. His PIT payment on the rental property is $2,000/month; he receives $2,400/month in rental income and earns $100k/year. Using today's 5 year rate of 3.79%, 25 yr amort, $75 heat, max ratios at 35%/44%:

-Using an 80% offset, he could potentially afford a mortgage of approx. $545,000.
-Adding 50% of gross rent to income, that now becomes approx. $375,000.

As you can see, the impact here on this type of scenario is tremendous. In this case, it would be best to have the clients come up with 20% down to avoid CMHC altogether.

Please feel free to contact me with any questions or comments, thank you.