New CMHC numbers may support broker concerns about an increasingly rigid use of credit scores in the underwriting process.
While the average borrower of a CMHC-insured mortgage held a credit score of 731 in 2010, that number has risen to 735 for the first nine months of 2011. It’s a modest jump, but one that some brokers say confirms their fears about the increasing rigidity in underwriting both by the lender and the default insurers.
“I haven’t had a single client with a Beacon score of less than 600 get a (A) mortgage approved this year,” Nick Tassone, broker-owner of Midtown Mortgage Service in Sault Ste. Marie, Ont., told MortgageBrokerNews.ca. “We’re seeing either the lenders or CMHC stick to that recommended 600 score on high ratios. What I’ve also seen is a number of clients referred to me just after they’ve sold their home and are about to buy a new one but because their credit score has taken a hit, there’s nothing I can do for them. They’re stranded.”
The observations reflect those of two other high-volume veterans, now grappling with stricter credit score guidelines for clients, regardless of how solid their incomes.
It means that CMHC recommendations are now being more closely adhered to, with most lenders declining deals that fail to meet those standards. The few willing to submit them to CMHC are finding it all but impossible to win the insurer’s backing, said Tassone.
Under the Crown corp. “recommended” guidelines, homebuyers should have a Beacon score above 600 in order to win CMHC insurance on a loan to value of 80 per cent or higher. It jumps to 610 for LTVs of 90.1 per cent to 95 per cent and falls to 580 for conventional loans with an LTV of 60 per cent to 80 per cent.
Realtors are largely unaware of just how closely lenders and default insurers are now sticking to those recommendations, Tassone, also a real estate agent, told MortgageBrokerNews.ca.
“As a result, they’re not advising clients who may have taken a hit to their credit scores to not sell their homes, because they may not be able to buy a new one."