Canada Guaranty offers clarity on low-ratio loans

By Steve Randall

Canada Guaranty has issued clarity on its Low Ratio Mortgage Insurance Eligibility Requirements for previously refinanced loans.

In a letter to lenders, the mortgage insurer provides several scenarios which could apply to loans with any increase to the outstanding balance or an extended amortization where the borrower switches a previously uninsured loan from one Approved Lender to another at arm’s length.

The letter from Mary Putnam, Canada Guaranty’s VP of sales and marketing, says that it is issuing the clarification after consulting with the Department of Finance and other mortgage default insurers.

It says that “if a prior uninsured loan has already been advanced with an Approved Lender, that loan may be switched to another Approved Lender and insured, regardless of the loan originally being a refinance, purchase or having an amortization greater than 25 years.”

Although the original lender cannot obtain mortgage loan insurance if they originally funded the loan as a refinance with an amortization greater than 25 years, the new lender can obtain insurance for a borrower-switched prior uninsured loan “provided the amount of the outstanding balance is not increased at the time of transfer and the amortization period does not exceed the lesser of the remaining amortization or 25 years.”

Examples:

These examples refer to files that would have originated after the low-ratio implementation effective date and therefore would not meet the grandfathering provisions.

1) Lender A originates a refinance loan. The borrower wants to transfer the prior uninsured loan (no increase to the outstanding balance or remaining amortization period) to Lender B. Will the loan be insurable for Lender B? Yes, given that Lender B is transferring in the loan and is not the originating lender that funded the refinance, the loan would be insurable. The amortization of the loan with Lender B must be the lesser of the remaining amortization or 25 years.

2) Lender A has a collateral charge with a maximum registered limit of $300,000 and an outstanding balance of $250,000. If the borrower increases the balance up to the global limit of $300,000, before the transfer (with Lender A), will the $300,000 loan balance be insurable for Lender B? Yes, given that Lender B is transferring in the loan from a previous collateral charge and is not the originating lender that funded the refinance, the loan would be insurable with Lender B provided that the amount of the outstanding balance is not increased at the time of transfer and the amortization of the loan with Lender B does not exceed 25 years.

3) Lender A originates a loan with an amortization period of 30 years. The remaining amortization on that loan is now 27 years and the borrower would like to transfer that prior uninsured loan to Lender B. Will the loan be insurable with Lender B? To be insurable with Lender B, the maximum amortization period of the loan must be the lesser of the remaining amortization or 25 years. In this example, given the remaining amortization is above 25 years, Lender B must reduce the amortization to 25 years in order for the loan to be insurable.

Further clarification is available from Ms. Putnam or her team on 416.640.8936 or mary.putnam@canadaguaranty.ca

 

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