Vol. 146, No. 26 — December 19, 2012

Registration

SOR/2012-282 December 10, 2012

NATIONAL HOUSING ACT

Insurable Housing Loan Regulations

The Minister of Finance, having consulted the Governor of the Bank of Canada and the Superintendent of Financial Institutions, pursuant to subsection 8.1(1) (see footnote a) of the National Housing Act (see footnote b), makes the annexed Insurable Housing Loan Regulations.

Ottawa, December 7, 2012

JAMES MICHAEL FLAHERTY
Minister of Finance

INSURABLE HOUSING LOAN REGULATIONS

INTERPRETATION

Definitions

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

  • “credit score”
    « pointage de crédit »
  • “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.
  • “eligible residential property”
    « immeuble résidentiel admissible »
  • “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.
  • “funded”
    « financé »
  • “funded” means, in respect of a housing loan, that money under the loan has been advanced to the borrower.
  • “gross debt service ratio”
    « coefficient d’amortissement brut de la dette »
  • “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.
  • “high ratio loan”
    « prêt à ratio élevé »
  • “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.
  • “low ratio loan”
    « prêt à faible ratio »
  • “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.
  • “quarter”
    « trimestre »
  • “quarter” means any period of three consecutive months beginning on January 1, April 1, July 1 or October 1.
  • “total debt service ratio”
    « coefficient d’amortissement total de la dette »
  • “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.
  • “value of the eligible residential property”
    « valeur de l’immeuble résidentiel admissible »
  • “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.

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.

Principal amount

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

APPLICATION

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

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.

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.

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.

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.

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.

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.

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.

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 95% of the value of the eligible residential property;

  • (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; and

  • (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.

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 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.

Debt service ratio calculations — certain loans

(3) For the purposes of paragraph (1)(h), if a high ratio loan has a term of less than five years or is not a fixed-rate loan, the gross debt service ratio and total debt service ratio must 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 has less than five years remaining in its term or is not a fixed-rate loan, 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.

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.

Low ratio loans

6. A low ratio loan must meet the following criteria:

  • (a) 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; and
  • (b) if 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 it is secured, is greater than 60% of the value of the eligible residential property, at least one of its borrowers or guarantors must have a credit score that is greater than or equal to 580.

EXCEPTIONS

High ratio loans — before October 15, 2008

7. (1) The criteria set out in section 5 do not apply to a high ratio loan that meets the requirements of a housing loan insurance product that was offered by the Corporation before October 15, 2008 if, before that date,

  • (a) the Corporation received a housing loan insurance application in respect of the loan;

  • (b) the lender made a legally binding commitment to make the loan to the borrower; or

  • (c) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured.

High ratio loans — October 15, 2008 to April 18, 2010

(2) The criteria set out in paragraphs 5(1)(b), (c), (d), (h) and (i) do not apply to a high ratio loan if it is scheduled to amortize over a period that does not exceed 35 years and, during the period beginning on October 15, 2008 and ending on April 18, 2010,

  • (a) the Corporation received a housing loan insurance application in respect of the loan;

  • (b) the lender made a legally binding commitment to make the loan to the borrower; or

  • (c) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured.

High ratio loans – April 19, 2010 to March 17, 2011

(3) The criteria set out in paragraphs 5(1)(b), (c), (d) and (h) do not apply to a high ratio loan if

  • (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 it is secured, is less than or equal to 90% of the value of the eligible residential property if the purpose of the loan does not include the purchase of that property;

  • (b) the loan is scheduled to amortize over a period that does not exceed 35 years;

  • (c) the Corporation has calculated the gross debt service ratio and total debt service ratio in accordance with the method set out in subsection 5(3); and

  • (d) during the period beginning on April 19, 2010 and ending on March 17, 2011,
    • (i) the Corporation received a housing loan insurance application in respect of the loan,

    • (ii) the lender made a legally binding commitment to make the loan to the borrower, or

    • (iii) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured.

High ratio loans — March 18, 2011 to June 21, 2012

(4) The criteria set out in paragraph 5(1)(b), (c), (d) and (h) do not apply to a high ratio loan if

  • (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 it is secured, is less than or equal to 85% of the value of the eligible residential property if the purpose of the loan does not include the purchase of that property;

  • (b) the loan is scheduled to amortize over a period that does not exceed 30 years;

  • (c) the Corporation has calculated the gross debt service ratio and total debt service ratio in accordance with the method set out in subsection 5(3); and

  • (d) during the period beginning on March 18, 2011 and ending on June 21, 2012,
    • (i) the Corporation received a housing loan insurance application in respect of the loan,

    • (ii) the lender made a legally binding commitment to make the loan to the borrower, or

    • (iii) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured.

High ratio loans — June 22, 2012 to July 8, 2012

(5) The criteria set out in paragraph 5(1)(b), (c), (d) and (h) do not apply to a high ratio loan in respect of which the Corporation received a housing loan insurance application during the period beginning on June 22, 2012 and ending on July 8, 2012 if it meets the criteria set out in paragraphs (4)(a) to (c) and it is funded no later than

  • (a) December 31, 2012; or

  • (b) June 30, 2013, if it is documented as being scheduled to be funded no later than December 31, 2012 but is delayed due to unforeseen circumstances beyond the borrower’s control.

Low ratio loans — before October 15, 2008

8. (1) The criteria set out in section 6 do not apply to a high ratio loan in respect of which the Corporation received a housing loan insurance application before October 15, 2008 if it meets the requirements of a housing loan insurance product that was offered by the Corporation before that date.

Low ratio loans — October 15, 2008 to April 17, 2011

(2) The criterion set out in paragraph 6(a) does not apply to a low ratio loan in respect of which the Corporation received a housing loan insurance application during the period beginning on October 15, 2008 and ending on April 17, 2011.

COMING INTO FORCE

S.C. 2011, c. 15

9. These Regulations come into force on the day on which section 20 of the Supporting Vulnerable Seniors and Strengthening Canada’s Economy Act, chapter 15 of the Statutes of Canada, 2011, comes into force, but if they are published in the Canada Gazette, Part Ⅱ, after that day, they come into force on the day on which they are published.

N.B. The Regulatory Impact Analysis Statement for these Regulations appears following SOR/2012-281, Eligible Mortgage Loan Regulations.