First National Financial LP

Residential Market Commentary - CMHC credit score criticism

  • First National Financial LP

The new insurance rules put in place by Canada Mortgage and Housing Corporation still have lenders, borrowers and brokers wondering what is going to happen.  There is a range of opinion and the change in the credit rating requirement, or Beacon Score, is getting a lot of attention.

CMHC has pushed its minimum credit score up from 600 to 680.  The move puts CMHC’s rate above that of the country’s two, private mortgage insurers.  And there are a couple of key criticisms.

Several market watchers question the benefit of tightening restrictions when the market is already in a slump.  Others point out that the new, tougher CMHC rules follow very closely on the federal government’s tougher mortgage stress-test requirements.  For some, the changes seem counter-productive given the billions of dollars being spent by the federal government to shore-up the economy during the COVID-19 pandemic.

“If house prices do soften, from a public policy perspective, that’s precisely the time to bolster support for first-time buyers. Making homes more difficult to finance will, once again, reserve properties for purchase by the already well-capitalized,” said Mortgage Professionals Canada CEO Paul Taylor.

That comment, about ‘properties being reserved for the well capitalized’, has been echoed by other mortgage and credit professionals who see Beacon Scores as “imperfect” and “flawed”.

They say Canadians with short credit histories like millennials and new immigrants – two economically important groups – will be unduly disadvantaged by the changes.

New Canadians, in particular, can be adversely affected by the anomaly in the credit score process that sees your rating drop simply because it is being checked.  Those who are trying to establish themselves in a new country are inevitably subject to more checks.  The negative impact on their score has nothing to do with their credit worthiness.