New BFS mortgage insurance rules change tomorrow

New BFS mortgage insurance rules change tomorrow

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 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 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.
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  • kulwinder sandhu 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
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  • Come 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 !
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