First National Financial LP

First National comments on new CMHC special measure

  • Jeremy Wedgbury, Senior Vice President, Commercial Mortgages

Driven by a massive acceleration in refinancing applications, Canada Mortgage and Housing Corporation (CMHC) has introduced a new use-of-funds restriction as a condition of insurance for market refinance loans on multi-unit properties with five units or more.

While details of what CMHC refers to as a “special measure” have not been announced, the use of refinance proceeds are now limited to one or more of the following purposes:

  • Purchase
  • Construction
  • Capital repairs/improvements (including for increased energy efficiency and accessibility)
  • Securing permanent financing (take-out financing to pay off a short-term construction loan)
  • Certain other uses determined on a case-by-case basis

Notably what will not be permitted – pending industry consultations – is equity take-outs or distributions to equity holders, which CMHC considers “an improper use of government resources.” The national housing agency believes that clients should seek “private sector solutions” for such purposes.

As Canada’s largest and most experienced apartment property lender, First National believes that equity release strategies are important generally in recycling capital to fund new developments and specifically in creating a liquidity cushion during this pandemic.

For these reasons, and because some potentially excluded strategies may in fact be aligned with CMHC’s goal of supporting growth in the housing market, we intend to present our views and concerns to CMHC in our role as your advocate and largest CMHC apartment lender to ensure the broadest definition of acceptable refinance proceeds.

Much to their credit, CMHC has indicated their willingness to seek advice from First National over the coming weeks as they develop the details behind this initiative.

I would encourage you to talk to your First National advisor about the implications of this measure on your business. We have more information on our website.

We look forward to discussing this matter with you and sharing our collective views with CMHC.