First National comments on new measure from CMHC

Last Updated: June 1, 2020

Beginning on May 28, 2020, CMHC included a new condition for market refinance loans involving multi-unit properties with five units or more. 

More specifically, the national housing agency now limits the use of refinance proceeds to one or more of the following purposes: purchase, construction, capital repairs and improvements (including energy efficiency and accessibility upgrades), securing permanent financing (i.e. take-outs to pay off short-term construction loans) and “certain other uses determined on a case-by-case basis.”

Missing from the list of permitted applications is equity take-outs or distributions to equity holders. These are now prohibited.

Why did CMHC introduce this restriction?

The national housing agency noted that COVID-19 has presented unique risks and concerns that it is seeking to manage while reinforcing the purpose of CMHC insured financing which is to support housing and affordability. It further noted that it was prompted to act because of a very significant acceleration in refinancing applications and that it considers equity take-out refinancing “to be an improper use of government resources.”

Does the restriction only apply to refinance loans for standard rental housing?

No. It applies to retirement housing, supportive housing, student housing, and single-room occupancy.

Does this restriction apply only to future applications?

It applies to future applications and previously submitted applications that have not yet been assigned to a CMHC underwriter.

What is the alternative for borrowers wishing to engage in equity takeout financing for general corporate purposes such as improving liquidity as a COVID-19 risk management strategy?

First National has conventional financing tools available to support borrowers achieve their end goals.

What does CMHC expect of lenders like First National?

It expects us to act reasonably and prudently in ensuring compliance with this new measure and to implement appropriate measures to address the requirement. This would include collecting supporting documents such as a signed offer to purchase, a construction plan and budget or repair/maintenance plan.

Can I take equity out after the completion of a newly constructed apartment property?

First National will be aggressively advocating for this so that developers are encouraged to assume the significant risk associated with new developments. By allowing this, it will ensure Canada’s housing-supply pipeline continues to grow.

What if a building improvement expenditure was made before the May 28th, 2020 implementation of this special measure; can a borrower use evidence of that recent investment to justify an equity takeout going forward?

CMHC has indicated that investments in housing must occur after the approval of the refinance transaction, so the answer is no. However, First National will encourage CMHC to broaden its definition of permitted uses by seeking recognition that recent capital expenditures are consistent with the national housing agency’s goal of supporting the housing market.

What if a borrower wishes to fund a 10-year capital improvement plan by doing an equity takeout now; will that be allowed?

It is not clear if this will be allowed. First National will advocate for this use of proceeds as we feel it is consistent with CMHC’s goal of supporting housing in Canada.

CMHC said that “certain other uses” of refinance proceeds may be permitted on a case-by-case basis. What other uses and how will these uses be determined?

These details have not been announced. First National will advocate for the broadest possible definition of “certain other uses” as we believe there are several ways to deploy refinance proceeds that fit within CMHC’s broader goal of supporting the housing market.

CMHC has said that it intends to consult with industry. Will First National be part of those consultations?

Yes, in our position as Canada’s largest apartment lender, we will most definitely make our views and those of our borrowers known to CMHC, share our knowledge and clarify the deployment details of this new measure. We will follow up as new information becomes available.

What would you suggest borrowers do now?

Speak to your First National advisor to share your thoughts, discuss refinancing strategies and keep pace with additional details of CMHC’s announcement.

Important information on CMHC’s directive for lenders to Canada’s apartment sector

Last updated: March 26, 2020

On March 23, 2020, CMHC offered a qualified opportunity to approved lenders to extend mortgage payment deferrals to owners of multi-unit residential properties who can prove financial hardship related to COVID-19. 

As Canada’s largest apartment lender, and your advocate with Canada’s national housing agency, we immediately reviewed CMHC’s announcement and sought clarity on how the program would work. 

As a result, we are pleased to note that CMHC has confirmed that it expects all lenders to act in a prudent manner in reviewing  – on a case-by-case basis – requests for temporary mortgage payment deferrals. And that under specific circumstances, these requests can be granted.

This “prudent lender” clarification underscores the vital role First National plays as the provider of capital for every insured mortgage and reaffirms our ability to make informed decisions in support of our clients.

What support is CMHC offering to First National’s commercial apartment property clients?

CMHC has indicated that approved apartment lenders may, using a prudent lender approach, allow borrowers facing COVID-19-related financial hardships to enter into a mortgage payment deferral program for up to six months. Evan Siddall, President and CEO of CMHC, publicly reinforced this view in a Toronto Star newspaper editorial published today when he wrote: “Since every situation is different lenders need to evaluate every situation on a case by case basis. They have told us they will do so with compassion and we have given them the confidence that we will stand behind any decision to give relief.” He went on to say that since CMHC is offering the same “forbearance” to multi-unit landlords as to Canadian homeowners “…we have insisted on patience from landlords and that they refrain from evictions.”

What is a deferred mortgage payment?

It’s defined as any reduction of scheduled principal and interest within a six-month window. In the event a deferral is granted, the actual amount will be based on the cash flow available from the property and/or other borrower resources.

Is CMHC’s directive open to all apartment owners including those who are well-capitalized?

No this is not meant as a broad solution open to every borrower. It is reserved for those who can demonstrate true financial need. CMHC requires First National to determine eligibility for deferred payments. In other words, First National as a lender – not CMHC as the insurer – has the ultimate responsibility to make the call on payment deferrals based on our prudent lending practices and our knowledge and experience in working with each individual borrower.

First National securitizes mortgages through the Canada Mortgage Bond program. How does a mortgage deferral affect First National? 

First National must continue to make all regular payments without exception. 

What evidence would I need to present to prove cash flow disruptions?

We will carefully assess the extent of financial stress and, based on CMHC requirements, look at evidence of cash flow disruption and insufficient liquidity. If rent collections have been affected due to COVID-19 related difficulties, we will require the following information to consider a partial or delayed payment including, but not limited too:

  • March 2020 Rent Roll
  • April 2020 Rent Roll including commentary related to the affected tenants (reason for non-payment)
  • Current copy of bank statements for the borrower/property entity

How do I engage with First National in the event of cash flow disruptions?

Contact your First National advisor or commercial.payments@firstnational.ca

Are there downsides to using such a program?

Payments are deferred and added to the outstanding mortgage balance where they will accrue interest. Following the payment deferral period, the lender may adjust the mortgage payment to reflect the increased outstanding mortgage amount or do so at renewal of the interest rate term. This is not something to contemplate unless it is absolutely necessary.

What are the upsides of CMHC’s directive?

It gives First National greater latitude to help qualified borrowers who really need it.

What if First National approves a deferral; does it still need CMHC permission to proceed?

CMHC requires us to report when a deferral program has been granted and has indicated to us that it will advise on the frequency and data required for future reporting.

Can the deferral program be applied to other financial obligations such as property taxes?

No, property tax obligations cannot be deferred. 

Are you willing to work with me if my business runs into difficulty as a result of COVID-19?

We are sympathetic to financial hardships faced by our clients and will work collaboratively with you to explore options to assist. Further, as the government provides assistance to individuals and businesses, we hope that any rent delays and arrears will decrease. In this regard, we have established a special team within First National to review requests on a case-by-case basis and complete the due diligence required of us in a highly responsive manner.


A message from the Commercial Lending team about COVID-19

Last updated: March 23, 2020

As Canada’s largest commercial mortgage lender with operations across the country, we have an obligation – at all times and during the COVID-19 pandemic – to protect our employees and maintain the continuity of service excellence that our clients and business partners have come to expect.

We take this obligation seriously and are using this section of our website to keep you informed of changes within our business that are designed to overcome or mitigate challenges arising from this health crisis and its impact on financial markets.

Since March 16, 2020 when we activated our business continuity program, the vast majority of our Commercial lending group members began working safely at home and all departments are fully operational with remote access to our databases: funding, servicing and administration.

This means we continue to:

  • Close deals both conventional and insured
  • Consult clients on all projects to provide smart risk solutions
  • Quote on insured and conventional loans – term and construction
  • Work collaboratively with borrowers to address issues arising from business and tenant disruption

Understandably, the volume of requests for information and assistance has greatly increased. We ask for your patience during this period and pledge that we will respond to every request as soon as possible.

For priority attention, we recommend using one of the following email addresses to reach us, depending on the nature of your request:

New mortgage inquiries: contact your First National advisor or commercialsales@firstnational.ca

Existing mortgage inquiries: commercial@firstnational.ca

Late/overdue mortgage flexibility inquiries: commercial.payments@firstnational.ca

We will keep this page of our website updated as new information becomes available and, no matter how long this pandemic lasts we will remain on the job and focused on serving you.


Other FAQs

Is First National open for business?

Absolutely. Our commercial team is working to close mortgages and stands ready and able to consult you on your business needs – including construction projects – and quote on new opportunities. That said, your patience is appreciated as the pandemic has affected the capital markets and other supporting organizations in the commercial lending marketplace including law firms. Notably, First National is qualified as an essential business under 
emergency laws that go into effect on March 25, 2020.

Are insured and construction funds available?

We have an extensive pipeline of 5-year and 10-year insured loans and are monitoring supply and demand conditions to ensure we can maintain balance. As of March 23, 2020, 5-year products are available and we are quoting on this basis.

What advice do you have for commercial borrowers in light of COVID-19?

Stay in close contact with your First National advisor who is here to help with expert advice. Now, more than ever, it’s important to plan contingencies.

Bond markets are not operating as normal. How does this affect rate fixing?

Hedging for rate fixing has become more expensive and, in some cases, unavailable. For now, we are limiting rate locks to 30 days from funding and we will continue to monitor the situation.