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New CMHC Rules Mean Cancelled Pre-Approvals for Brokers and Clients

20 August 2013

The announcement was made at the beginning of this month that CMHC is changing their rules, and placing a cap on the amount of guarantees they’d be handing out to any individual lender. The first fallout we were to feel from that was higher mortgage rates at all lenders across the board, something worrisome indeed for those looking for a new mortgage. Now though, brokers are saying they’re having pre-approvals automatically cancelled due to the new rules, and it’s leaving homeowners and buyers in the dust.

“They basically cancelled all of the pre-approvals,” one broker who wished to remain anonymous said. “I had nine of them and they were cancelled with no explanation.”

At the time that broker was unsure of why his pre-approvals were cancelled. After looking into it a bit more, his underwriter and broker of record confirmed that it was due to the new limit put in place by CMHC. While that lender offered a compromise with five-year terms reduced and a protected rate, it still wasn’t enough for his clients.

The move is making brokers angry, and testing their loyalty to certain lenders who are making cancellations just to free up some space in their own books.

“If they break their word, do you want to send them business again?” he asked. “They went from the top of my list to the bottom. Why would I send them another deal when I got screwed over?”

Another broker says he’s not having problems with pre-approvals, but rather an underwriting process that seems ‘new’ ever since CMHC introduced this new cap.

“They have been stricter this week,” says Deepak Bansal of Dominion Lending Centres. “I have had one declined and on the other two, the underwriters were a lot stricter than they had previously been. It’s been corrected now but I had to get our business development manager involved to send them their guidelines to get it rectified.”

It is important to note that pre-approvals typically only have a 30 per cent close rate anyway. These pieces of paper are simply to give homeowners and home buyers an idea of what they can afford while refinancing or getting a mortgage, so having nine of them cancelled all at once – while not convenient – may also not be that out of the ordinary.

What is clear from the story is that brokers are not happy with the cap CMHC has put on mortgages, and they’re clients also likely won’t be either; at least those looking for CMHC insurance. Do you think brokers are making too big a deal out of this? What could CMHC done in place of putting a cap on their guarantees, and still ensure that they wouldn’t hit the ceiling they’ve been so worried about for so long?

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