Insurable Housing Loan Regulations (SOR/2012-282)

Interpretation

Marginal note:Definitions

• 1 (1) The following definitions apply in these Regulations.

  Act

  Act means the National Housing Act. (Loi)

  credit score

  credit score means a score that is

  • (a) issued by a credit reporting agency that is incorporated by or under an Act of Parliament or of the legislature of a province; and

  • (b) based on a scale that is substantially equivalent to a scale used on June 26, 2011 by a credit reporting agency that was at that time incorporated by or under an Act of Parliament or of the legislature of a province. (pointage de crédit)

  eligible residential property

  eligible residential property means a property consisting of one to four family housing units, together with any associated property interests or real rights, structures and facilities. (immeuble résidentiel admissible)

  funded

  funded means, in respect of a housing loan, that money under the loan has been advanced to the borrower. (financé)

  gross debt service ratio

  gross debt service ratio means the percentage of a borrower’s gross annual income that is required to cover the annual payments associated with the eligible residential property against which a housing loan is secured. (coefficient d’amortissement brut de la dette)

  high ratio loan

  high ratio loan means a housing loan that is secured by an eligible residential property and whose principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property, is greater than 80% of the value of the eligible residential property at the time the loan is approved. (prêt à ratio élevé)

  low ratio loan

  low ratio loan means a housing loan that is secured by an eligible residential property and whose principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property, is less than or equal to 80% of the value of the eligible residential property at the time the loan is approved. (prêt à faible ratio)

  quarter

  quarter means any period of three consecutive months beginning on January 1, April 1, July 1 or October 1. (trimestre)

  total debt service ratio

  total debt service ratio means the percentage of a borrower’s gross annual income that is required to cover their annual payments associated with housing and all other debts. (coefficient d’amortissement total de la dette)

  value of the eligible residential property

  value of the eligible residential property means the value that is ascribed to an eligible residential property by a lender or the Corporation for the purpose of granting or insuring a housing loan and that is verified using a method that is generally accepted by prudent lenders, insurers or professional residential property appraisers. If the purpose of the loan includes the purchase of the property, the value must not exceed

  • (a) the purchase price of the property; or

  • (b) the purchase price of the property plus the estimated cost to the borrower of planned improvements to the property, if the purpose of the loan also includes those improvements. (valeur de l’immeuble résidentiel admissible)

• Marginal note:Verification of value

  (2) For the purposes of the definition value of the eligible residential property in subsection (1), generally accepted methods of verifying value include

  • (a) the use of a statistically reliable and up-to-date valuation model that assesses the value’s reasonableness;

  • (b) a fair-market-value appraisal by a professional residential property appraiser who is independent of the borrower;

  • (c) a drive-by appraisal; or

  • (d) a review of the value of comparable properties.

• Marginal note:Principal amount

  (3) For the purposes of these Regulations, the principal amount of a loan does not include any housing loan insurance premiums.

Application

Marginal note:No pre-existing contract

2 These Regulations apply to every housing loan that is not insured under a contract of insurance that the Corporation and an approved lender entered into before the coming into force of these Regulations.

Criteria

Marginal note:Insurability

• 3 (1) Subject to subsections (4) to (6), a housing loan must meet the criteria set out in section 4 and, as applicable, section 5 or 6 for the Corporation to be able to provide insurance against risks relating to it.

• Marginal note:Replacement of security and increased balance

  (2) For greater certainty, if an insured housing loan is modified to both replace its security with a new eligible residential property and increase its outstanding balance, the increased portion is to be considered, for the purposes of these Regulations, as a new loan approved on the day on which the increase is approved, which must meet the criteria that apply on that day for the Corporation to be able to provide insurance against risks relating to it.

• Marginal note:Other modifications

  (3) If any other modification is made to an insured housing loan that requires the payment of an additional housing loan insurance premium, the loan is to be considered, for the purposes of these Regulations, as a new loan approved on the day on which the modification is approved, which must meet the criteria that apply on that day for the Corporation to be able to provide insurance against risks relating to it. Any modification that does not require the payment of an additional housing loan insurance premium does not affect the Corporation’s ability to provide insurance.

• Marginal note:Loan workout

  (4) The Corporation may provide insurance against risks relating to a housing loan that is made or modified in relation to a loan workout whose purpose is to reduce or avoid losses on a real or potential housing loan insurance claim on an outstanding insured housing loan if it meets the criteria set out in paragraph 4(a) and does not require the payment of an additional housing loan insurance premium.

• Marginal note:Loan discharge

  (5) The Corporation may provide insurance against risks relating to a housing loan whose purpose is to discharge the outstanding balance of a prior insured housing loan if the new loan meets the criteria to which the prior loan was subject at the time of the discharge and does not require the payment of an additional housing loan insurance premium.

• Marginal note:Particular categories of loan

  (6) The Corporation may provide insurance against risks relating to a housing loan if the loan is

  • (a) made to a borrower that is owned, otherwise guaranteed or subsidized by one of the following entities, and the purpose of the loan, guarantee or subsidy is to carry out a government social housing program:

    • (i) a provincial or municipal government,

    • (ii) an agency or an agent corporation of the federal Crown, other than the Corporation, or

    • (iii) an agency, agent corporation, mandatary corporation or housing corporation of a provincial or municipal government;

  • (b) in relation to a project that is owned, otherwise guaranteed or subsidized by an entity referred to in paragraph (a), and the purpose of the loan, guarantee or subsidy is to carry out a government social housing program;

  • (c) secured by a property consisting of more than four family housing units, together with any associated property interests or real rights, structures and facilities; or

  • (d) secured by a property situated on a reserve as defined in subsection 2(1) of the Indian Act.

Marginal note:General criteria

4 A housing loan must be

• (a) underwritten and administered by an approved lender or held in a registered retirement savings plan or a registered retirement income fund and administered by an approved lender; and

• (b) secured in first or second priority position by an eligible residential property.

Marginal note:High ratio loans

• 5 (1) A high ratio loan must meet the following criteria:

  • (a) at the time the loan is approved, its principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property against which the loan is secured, must be less than or equal to

    • (i) 95% of the value of the eligible residential property, if its value is no more than $500,000, or

    • (ii) $475,000 plus 90% of the value of the eligible residential property in excess of $500,000, if its value is greater than $500,000;

  • (b) the purpose of the loan must either

    • (i) include the purchase of the eligible residential property against which it is secured, or

    • (ii) be the discharge of the outstanding balance of a prior uninsured low ratio loan;

  • (c) the loan must be scheduled to amortize over a period that does not exceed 25 years;

  • (d) the value of the eligible residential property against which the loan is secured must be less than $1,000,000;

  • (e) if the loan agreement allows for fluctuations in the amortization period as a result of a variable rate of interest during the term of the loan, the loan payment must be recalculated at least once every five years to conform to the original amortization schedule;

  • (f) the loan agreement must establish scheduled principal and interest payments that will begin reducing the outstanding principal in accordance with the overall amortization schedule agreed to at the making of the loan, commencing on

    • (i) the day on which the loan is funded,

    • (ii) the day on which the agreement of purchase and sale closes, or

    • (iii) the day on which the improvement, conversion or development of the eligible residential property is completed;

  • (g) at the time the loan is approved, at least one of its borrowers or guarantors must have a credit score that is greater than or equal to 600;

  • (h) at the time the loan is approved, the gross debt service ratio and the total debt service ratio must not exceed 39% and 44%, respectively;

  • (i) the eligible residential property against which the loan is secured must contain at least one family housing unit that will be occupied by the borrower or by a person related to the borrower by marriage, common-law partnership or any legal parent-child relationship;

  • (j) at the time the loan is approved, it must be reasonably likely to be repaid, having regard to the borrower’s capacity to make the loan payments while paying their other debts and meeting their other obligations over the term of the loan, based on reasonable assumptions as to what the highest loan payment over the term of the loan will be; and

  • (k) if the loan is part of a pool of loans on the direct basis of which marketable securities are issued, any securities issued on the direct basis of the pool after July 1, 2016 must be guaranteed under subsection 14(1) of the Act.

• Marginal note:Credit score exception

  (2) The criterion set out in paragraph (1)(g) does not apply if no more than 3% of the lender’s high ratio loans and low ratio loans that were approved for insurance and funded during one of the following periods were loans in respect of which no borrower or guarantor had a credit score of at least 600:

  • (a) the first four quarters of the preceding five quarters;

  • (b) the first four quarters of the preceding six quarters; or

  • (c) the first four quarters of the preceding seven quarters.

• Marginal note:Debt service ratio calculations — certain loans

  (3) For the purposes of paragraph (1)(h), the gross debt service ratio and total debt service ratio are to be calculated using the annual payments, in respect of the loan and any other loan with an equal or prior claim against the eligible residential property, that would be required to conform to the amortization schedule agreed to by the borrower and the lender if the interest rate were the greater of

  • (a) the interest rate set out in the loan agreement, and

  • (b) the five-year conventional mortgage interest rate, as determined weekly by the Bank of Canada, that was in effect on the Monday of the week in which the calculation is performed.

• Marginal note:Reasonable likelihood of repayment

  (4) A high ratio loan does not meet the criterion set out in paragraph (1)(j) unless the lender or the Corporation has made reasonable efforts to verify the borrower’s income and employment status or, if the borrower is self-employed, to assess the plausibility of the income reported by the borrower.