Discontinuation of CMHC Self-Employed
Without Traditional Third Party Validation of Income
A major change in the mortgage approval process for the self-employed could have significant effects on their access to CMHC mortgage loan insurance for a home if they cannot provide third party verification for their income. However, for those who can provide the traditional forms of verification, they will retain access to that insurance. All of the current 1-4 unit CHMC Mortgage Loan Insurance products will be available, but the criteria will be the same as those for salaried borrowers. The premiums will be the same as well, ensuring that the process remains fair for self-employed borrowers. P Acceptable forms of documentation are available to the majority of self-employed professionals. One example is a copy of the CRA (Canada Revenue Agency) Notice of Assessment. Other examples include review engagement financial statements or audited financial statements that a practicing accountant has compiled for the previous 24-month period.
Verifying the length of operation for a self-employed person’s business can take on several forms, varying with the characteristics of the loan application that the individual submits for mortgage insurance. Some examples that are acceptable include business credit reports, active business bank accounts, financial statements that come with a Review Engagement Report that a practicing accountant has signed, audited financial statements, articles of incorporation, business license or income tax returns that have support from a CRA Notice of Assessment.
The date for this effective change is important, as it may have an effect on pending applications for financing. As long as the CMHC receives the mortgage loan insurance request before May 30, 2014, the bureau will process the application according to the existing terms and conditions, even if the date for closing or progress draws falls after May 30. This keeps borrowers from having their deals fall apart just because they are not all complete by the time May 30 comes around. Applications received after May 30 are subject to the new rules for third party verification.
The current Self-employed With Traditional Third Party Validation of Income product from the CHMC will remain available. This program is already in place for people who have third party verification for their self employment income and have gone ahead to submit that income verification along with their applications. There are no plans to alter that program.
Another significant change set to take effect on May 30, 2014, is that CMHC will stop taking applications for Low Ratio risk assessment. This affects cases in which the borrower is self-employed but lacks traditional income verification from a third party. Loans submitted by an Approved Lender under this program and have been issued an “insurable” response no more than six months ahead of the request date for portfolio insurance will remain eligible to be included in a loan pool for portfolio insurance subject to the limitations that CMHC places periodically on portfolio insurance. P If a lender sends in an application for a borrower who is self-employed without traditional verification of income from a third party on or after the cutoff date of May 30, the lender will get this error message:
XXXX SE W/O INCOME VALIDATION NOT ELIGIBLE p XXXX PLS RESUBMIT WITH TRAD INCOME VERIFICATION P If the borrower has the ability to provide traditional verification of income from a third party, the approved lender will have the chance to resubmit the information with the additional information. The Approved Lender also has the option of canceling the application if this information is not available.
This does not affect applications submitted before May 30 but for which changes are submitted after May 30. The first submission of the application is the date of record for that loan, even if the paperwork ends up being resubmitted. All updates to the CMHC website will be effective on May 30, 2014.
Handling mortgage requests is often a confusing process. Amansad Financial has representatives who are aware of all of the current and pending regulations with regard to mortgage insurance through CMHC for self-employed borrowers. The effect of these changes is to reduce the risk of default and foreclosure by requiring independent verification of income from a third party. While this makes the application process more difficult for self-employed persons, it also protects the mortgage industry and the economy as a whole. To get answers to questions about your own situation, contact a professional at Amansad Financial today!