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Friday, September 30th, 2016

Analyzing CMHC Borrowers

Analyzing CMHC Borrowers

What does an insured mortgage borrower look like?

According to CMHCdata from last quarter, residential borrowers who paid for mortgage default insurance had:

  • 25-year amortizations, on average
  • Amortizations over 25 years, only 3.1% of the time
  • 745 average credit scores
    • 82.6% had scores of 700+ (scores range from 300 to 900)
    • CMHC doesn’t have a 680+ breakpoint in its credit score data but hopefully it adds one. A score of 680 is theminimum needed to qualify for higher debt ratio flexibility, as well as the best interest rates in many cases.
  • Average mortgage amounts of $230,416
  • Mortgages over $600,000, only 4.7% of the time
    • About the same as last year
  • 25.5% average gross debt service (GDS) ratios
    • This is quite low as 32% is the traditional maximum

If we look at all transactionally-insured borrowers on CMHC’s books, not just those who closed last quarter:

  • 9.3% have less than 10% equity
    • This speaks to both surging property values and people paying down their mortgages
  • 51.4% took out amortizations over 25 years
    • This ratio will steadily drops thanks to the extinction of high-ratio amortizations beyond 25 years
  • 730 is the average credit score
    • Recent borrowers have higher average scores than CMHC’s overall book.

CMHC should be commended for expanding the borrower data it discloses publicly. It shares a lot more than the other two insurers and the data thus far shows no obvious areas for concern.

That said, it still doesn’t provide some of the most important risk metrics of all. Most obvious is the lack of data on:

  • Total debt service (TDS) ratios
    • How close is the average government-backed borrower to the traditional 40% maximum debt ratio?
  • TDS by loan-to-value
    • How many people have a high TDS and less than 10% down?
    • This is one of the most telling metrics of all because folks with low equity and high debt ratios are among the riskiest prime borrowers
  • Average loan amount by loan-to-value
    • How big are the mortgages for people with only 5% down?

CMHC could answer all of these questions for the Canadian taxpayers who back the crown corporation, and hopefully it eventually does.

Mind you, if this data were available, it’s unlikely that it would reveal any serious cracks in CMHC’s hull. But we won’t know that until we see it.

Rob McLister, CMT

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