New BFS mortgage insurance rules change tomorrow

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The new CMHC rules for self-employed borrowers take effect tomorrow and pose new challenges for this category of client.

First off, self-employed borrowers with more than three years in the same business who apply for a mortgage using stated income, as well as commissioned-income borrowers, are now required to provide to provide traditional proof of income (or "third party validation") through documents like financial statements, contracts and T4s.

Those who have recently become self-employed and don't have third-party validation can still apply for a mortgage, but have to come up with a 10 per cent down payment instead of five per cent. Refinancing will also be cut to 85 per cent loan to value instead of the previous 90 per cent.

Brokers have been giving the rule changes mixed reviews. Mark Fidgett, owner of Verico Notapennydown.com said the latest move was "off the wall" and hopes that if enough people talk about their displeasure with the changes, the CMHC might alter its decision.

"I don't think this was a good decision - it doesn't make sense now," he said, adding it also makes writing off income for tax purposes more difficult for BFS clients.

Dominion Lending Centres broker Stephen Gilmour, on the other hand, agrees with CMHC's decision.

"The more people who default on loans, the worse the market becomes," he said, noting he felt a lot of self-employed people have qualified for mortgages when they shouldn't have. "This provision for self-employed is going to put the right people in the right structure of home."


With files from Kit Kadlec.

  • Elaine Terry on 2010-04-09 5:18:45 AM

    Actually,I honestly do not feel these types of clients default as much as salaried employees. What they may have taken into consideration is at the least take an overall look at this BFS clients bank balances over the last 6 to 12 months. We have some strong BFS clients with real money in the bank. How unfortunate for them, they write of so much on paper.

  • kulwinder sandhu on 2010-04-09 6:06:12 AM

    client that job in the range of 100k can lose there job next. but anyone who owns a business will be much better postion to pay

  • Come on on 2010-04-09 6:36:45 AM

    Hey Stephen, I just bet that if had someone sitting in front of you looking for stated mortgage, you didn't tell them they couldn't afford it did you? Get of your moralistic high horse and take a look at how many salaried people were put out of work last year, that ran into money issues and defaulted.
    The new CMHC rule doesn't even have common sense behind it's thinking. So after 3 years you want me to prove income, when I am finally turning a profit? Hellloooooo it is classic case of the chimps are running the asylum !

  • John White on 2010-04-09 6:54:14 AM

    Seems like many brokers have short term memory loss.

    Lets think back 2 years - "High risk mortgage lending in the US leads to worldwide economic crisis". In Canada, not much of a crisis in our financial system given our strong, prudent underwriting practices. Mortgage defaults on Canadian mortgages have remained relatively low, but make no mistake, the default rates on stated products are high, why els would insurers and B lenders charge higher premiums and fees, have high beacon requirements and are restrictive of LTV and number of units. If our lenders keep doing these products with higher defaults, they run the risk of no longer being profitable, and limiting our choice of lenders. Especially our monoline non-bank lenders who run on thin margins and have small volumes, they can't absorb high defaults like the banks can.

    People always lie about how much money they make, even more so if you tell them you're not going to ask for proof. So many times, we're putting people in homes they can't afford.

    I think this is a good move by CMHC.

  • Barbara Buote on 2010-04-09 7:07:19 AM

    Let's not forgot an important category of generally

  • Gidia on 2010-04-09 7:29:33 AM

    This is the most ridiculous rule ever. Someone with an established business of more than 3 yrs, well known in the community, excellent credit, proven assets, cannot get a stated income mortgage, whereas someone in the business less than 3 yrs, who has NOT proven themselves, who probably has very little in the way of assets, and NO established business, will be able to use the stated income product. Obviously, those who make these types of rules, have no knowledge what so ever regarding mortgages. Stephen Gilmour, I have to respectivly disagree totally with your comment. Someone less than 3 yrs in the business has more of a chance of getting into a home, rather than the established BFS people, the ones who have been providing jobs have been active in their business for many years. This rule needs to be changed.

  • K.W.Funk on 2010-04-09 8:00:09 AM

    Kind of makes you wonder if some where in Revenue Canada, there is a room full of people, rubbing they hands in glee, at the additional revenue that will be created now that self-employed people will have to claim more income if they want to buy a house. Interesting when Gov'ts get involved.

  • M on 2010-04-09 8:07:57 AM

    The three year rule is riduculous. People in business don't suddenly start showing more income to revenue Canada. Whether in business 1 month or 10 years--business people will write down the maximum they possibly can. And for CMHC to think that they should be able to prove income at this point is naiive on their part.

  • Rhonda on 2010-04-09 8:27:08 AM

    I couldn't agree with you more. the rule should be reversed! It makes no sense what so ever, to allow a new BFS client to state their income. As well, what about us? We are all commissioned sales people? Are they going to allow us to use our T4A's to qualify our income?

  • S on 2010-04-09 9:47:19 AM

    Most businesses that fail, fail in the first three years. Why would be giving these people mortgages and not clients who have established businesses that haven't failed after three years. The people with businesses older than three years have creative accountants, like most of the BFS world.

  • M. on 2010-04-09 12:21:26 PM

    We all need to understand, this is all about politics, and finding a way to squeeze $$$$ out of the public.

  • Thinking out Loud on 2010-04-09 12:48:30 PM

    I have come across a few lenders that are taking the "third party validation" route more so, and it's not unreasonable. example on a $500,k purchase they been asking for $50,k investment statement, may it be in a from of a RSP or tied up in a property. And let's face it if you've been in BFS for over 3yrs, and haven't shown it to the government;been successful making the cash. One shouldn't be BFS. Most people enjoy the fast lane,and seem to forget the responsibilities that go behind it. We must be aware of all reason surroundings this decision. Look at the statistic's of BANKRUPTCY out there, just see how many were filed from individual's that were BFS.

  • AB Mortgage Broker on 2010-04-09 1:09:10 PM

    It's quite simple, it's a tax grab. Furthermore, CMHC has said that because commission income is provable, those who receive commissions are no longer eligible for that stated program, period. If that's the case, why can't we qualify based on the "provable" T4A earns as reported. Those who

  • Rhonda on 2010-04-09 11:49:30 PM

    AB Mortgage. DITO! As I stated in my comment above, they should allow commissioned sales people to use their T4A's to qualify. Regardless of deductions. An employee who lives beyond their means, and has no savings at all, and is taxed heavier can use their gross income! Let's face it, with some creative accounting, the BFS client keeps more of their "pay" than the salaried individual that can be down sized, laid off, or let go completely.

  • Gidia on 2010-04-09 11:56:52 PM

    I think CAAMP/IMBA mortgage agents/brokers etc, need to start the process of getting these rules changes. Not only the ridiculous BFS stated income rule, but as well as the commissioned income. These rules are basically telling business owners, or commissions sales people, they can't own a home. I have no idea how or where to start to change these rules, however if anyone is interested let me know. gidia_molinaro@centum.ca We have to have a voice in this matter.

  • Val on 2010-04-10 12:14:43 AM

    I am a banker. This new rule is VERY fair but still not strong enough. I do understand the people crying out, but it's because they had milk for all this time and now there is going to be less. A self-employed will deduct lunches with friends and familly (or mistresses) off their income to pay less taxes. The salaried employee can't do that even though they may have the same or even more expenses eligible under the BSF income tax formula. Is this fair? For example: BFS will make about 50k gross but will pay tax on 25k, hence only about 3-5k in tax. The salaried will make 50k in gross and pay tax on that whole thing year after year! All public services that our taxes go on are used by EVERYONE EQUALLY bfs or not. Is this fair? The debate on whether the CMHC has done the right thing on the BFS program is a very short one, keeping in mind that the CMHC is the federal governament. In my personal opinion, the CMHC must find a different way of validating if someone is at a risk of default (BSF or otherwise).

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