- What CMHC issued changes to its multi-unit mortgage loan insurance policies
- Why The move adjusted premiums and allowed more loans to be advanced in full
- What next The new premiums take effect July 14
Changes to Canada Mortgage and Housing Corp.’s multi-unit mortgage loan insurance policies present a mixed bag for borrowers.
The downside of the changes announced last week is rising premiums for a wide swath of loans, effective July 14. But market pros praised the end of a requirement for rental achievement holdbacks for applications submitted under the MLI program for market-rate rentals. The removal allows loans to be advanced up to 85% of the loan-to-cost or loan-to-value ratio – whichever is less – without hitting prescribed rental income targets.
“That’s actually quite helpful,” Corey Pacht, partner and executive vice president of operations at Fitzrovia, told Green Street News. “You used to have to earn out those proceeds following completion and lease-up, which partially defeated the purpose of high-leverage because you still needed to plug the gap during construction.”
The change, however, does not apply to the more-popular MLI Select program – a missed chance to add even more benefit, Pacht said.
“People go with Select for the high leverage, and if you’re not actually getting that leverage unlocked during construction and lease-up, it’s not particularly impactful,” he added.
As for the higher loan premiums, the crown corporation says the new rate schedule “reflects the specific risk characteristics of the loan being insured, such as lower down payments or new construction projects.”
| Product | Loan-to-value (up to and including) | Construction Financing | All other loan purposes |
| Standard Rental Housing | |||
| MLI Market and MLI Select | 65% | 3.25% | 2.60% |
| 70% | 3.75% | 2.85% | |
| 75% | 4.25% | 3.35% | |
| 80% | 5.00% | 4.35% | |
| 85% | 6.00% | 5.35% | |
| MLI Select only | 90% | 6.75% | 5.90% |
| Greater than 90% | 7.00% | 6.15% | |
| All Other Shelter Models | |||
| MLI Market and MLI Select | 65% | 6.55% | 6.30% |
| 70% | 6.85% | 6.60% | |
| 75% | 7.15% | 6.90% | |
| 80% | 7.30% | 7.05% | |
| 85% | 8.00% | 7.75% | |
| MLI Select Only | 90% | 8.25% | 8.00% |
| Greater than 90% | 9.00% | 8.75% |
When MLI Select launched in 2022, it saw borrowers flock to the program, which offered lower rates and longer amortizations. The new premiums represent a reset based on the level of risk CMHC is taking on, Krissy Fry, director and senior vice president of debt and structured finance at CBRE, told Green Street News.
“I think when the product launched, [CMHC] wouldn’t have expected it to be as wildly successful as it was, and they did offer lower rates as an incentive for developers,” Fry said. “A large majority of their business moved from their standard product over to MLI Select and they now need to adjust to better align risk and premium for that product.”
The most noticeable increase in the premium is for alternative-shelter models such as student housing and single-room occupancy. But Fry said the new and old premiums can’t be fairly calculated against each other.
“It is a change in the methodology, where the premiums are now more aligned with project specific risk,” so I would encourage clients to reach out directly to their lending partner to discuss their individual loan characteristics and how the premium is going to impact their loan,” she said.
Premiums will still be subject to surcharges: 25 bp for extended amortizations; 50 bp for second mortgages, applied to the outstanding balance of the first mortgage; and 100 bp for the portion of the loan applicable to non-residential space. A new 25-bp surcharge for effective gross income not being met was created to offset the removal of the rental achievement holdbacks requirement.
“A 25-basis-point surcharge to not have to keep 10-20% equity into the project through the construction period is expected to be a favorable trade-off for clients,” Fry said.
Of course, not all premiums will rise. For projects addressing affordability, energy efficiency and accessibility, MLI Select will use a points system to offer discounts of 10% to 30%.
“It’s helpful in certain instances but worse in others. However, the premium is not the differentiator between this program working or this program not,” Pacht said.
Pacht would like to see more investment in CMHC’s Affordable Construction Loan Program, which provides low-cost construction loans at a fixed rate for rental projects with an affordability component.
“It doesn’t have enough funding,” Pacht said. “Expanding the ACLP program materially – multiples of what it is – would be a big one.”
Pacht added he would like to see more efficiency in the MLI application process, too.
“There’s so much uncertainty attached to it that we can’t buy a site on the basis of getting the CMHC debt,” he said. “What we might do is ask, ‘Does it underwrite with traditional debt?’ If yes, let’s buy the site, and we’ll view the CMHC program as upside, but it’s so slow and we’re trying to make multi-million-dollar decisions off the back of it.”
