CFAA REPORT
NEW RULES LIMIT USE OF CMHC MORTGAGE INSURANCE A breakdown of CFAA’s position BY
JOHN DICKIE, PRESIDENT, CANADIAN FEDERATION OF APARTMENT ASSOCIATIONS
O
n May 28, CMHC announced a major change to the rules that apply to upward refinancings using CMHC mortgage insurance on multifamily properties of five units or more. The change sparked outcry among some rental housing providers. CMHC has since provided clarifications, which have reduced the level of concern. Despite the clarifications, CFAA believes the changes are still counter-productive to CMHC’s goal of improving housing affordability.
THE NEW MORTGAGE INSURANCE RULES
CMHC has ruled that upward insured refinancing proceeds may only be used for a permitted purpose in relation to residential housing in Canada. The permitted purposes include one or more of the following: • Purchase; • Construction; • Capital repairs/improvements (including for increased energy efficiency and accessibility), and; • Certain other uses permitted on a caseby-case basis (such as funding to deal with COVID-19 rent shortfalls). 10
FAIR EXCHANGE | JULY/AUGUST 2020
No equity take-out or equity distributions are permitted from insured borrowed funds except from the initial insured financing of a newly constructed rental housing building. This applies to private owners and also to institutions such as pension plans who want to distribute capital to pay pensions. With the consent of an approved lender, equity take-outs can still be made using conventional (i.e. uninsured) borrowings, secured by second mortgages. For the clarifications which have reduced the level of concern, visit www.cfaa-fcapi.org. The following chart lays out the reasons why CMHC believes the changes support housing affordability, but CFAA believes the changes work against housing affordability.
