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More Tightening of Canadian Mortgage Lending Guidelines

Effective today, Genworth has made a dramatic change to their mortgage insurance product for alt-a Business for Self product (also known as BFS).  The change has now made this product unavailable to commissioned income individuals!!!  This is huge!  This change will effect many professions, specifically Realtors, mortgage associates, car salesmen, industrial equipments salespeople, boat and rv salespeople, condo and timeshares salespeople, etc.  Anyone who is self employed and derives their income from commission sales will no longer be able to use this insured product for a stated income mortgage.

 

Here is the release from Genworth describing their explanation of why this product is being withdrawn:

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In today’s changing mortgage environment, Genworth continues to evaluate and adapt its policies in order to simplify guidelines and ensure prudent underwriting standards. As such, we would like to clarify certain aspects of our Business for Self – ALT A product as well as announce the following changes:

Background

Business for Self – ALT A was designed for self-employed borrowers who are unable to provide traditional income verification but have a proven two-year history of managing their credit and finances responsibly.The borrower is required to declare their annual income, which should be reasonable based on the industry, length of operation and type of business.

The program was not intended to be a "No Income Qualifier" (NIQ) product or for equity lending. The new Mortgage Insurance guarantee parameters (October 15, 2008) clearly stipulate that if the borrower is self-employed, a reasonable effort must be made to access the plausibility of the income reported on the loan application. The Government’s intent was to make any high-ratio programs that operated solely as No Income Qualifiers (NIQ) or equity lending ineligible for the guarantee. As such, in addition to ensuring a strong credit profile and marketable real estate, we also need to be confident that the borrower’s declared income is reasonable and can adequately service the mortgage being applied for.


The Following Changes to the Business For Self – ALT A Product are effective December 8, 2008:

  • Commissioned Borrowers are no longer eligible under the Business for Self - Alt A program given that commissioned income is provable.
  • Refinance applications (1-2 units) are eligible up to 85% LTV (reduced from 90% LTV)
  • Lenders should confirm self-employment by one piece of documentation:
    - Business License
    - GST/HST Return Summary
    - T1 Generals with statement of business activities attached prepared by an arms length third-party
    - Audited Financial Statements for the last 2 years, prepared and signed by a CA
    ** Please note: A Business Credit Report will no longer be accepted
  • Max 2 units (Primary Residence Only
  • Max Loan Amount $750K (GTA/GVA/GCA), $600K (Rest of Canada)
  • 80.01 - 85% ltv has new minimum credit score of 650 (from 620)
  • Maximum number of Alt A mortgages is decreased to one
Applications that are submitted prior to December 8, 2008 will get processed based on the old product criteria. The new guidelines will apply only to new applications received on or after December 8, 2008.  However, in an effort to provide for a smoother transition, applications submitted prior to January 1st, 2009, may qualify under the old parameters on an exception basis. 
 
Please note: due to system limitations, lenders will not be able to submit Business For Self (ALT A) applications that are 3 & 4 units or Secondary homes. As such, these applications will not be eligible for  approval even upon request. 




The product is now targeted at:
 
Our “Alt A” product is aimed at the self-employed borrower who has the opportunity to generate additional income (usually in cash) that is typically not documented in their business financial statements. As a result of this cash component, the borrower’s NOA/Tax Returns do not accurately reflect their yearly income and they may find it difficult to qualify under traditional methods.




Robert May


 

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Robert May is the broker and owner of Rainbow Realty of Lethbridge Alberta. He is also a licensed mortgage associate and financing expert with Canada First Mortgage of Calgary Alberta. He has been in the real estate industry since 1993 and offers full MLS real estate services to Lethbridge and surrounding area, as well as mortgage financing, refinancing/renewals, preapprovals, and home equity financing to Lethbridge and Southern Alberta. He can be found online at www.LethbridgeLoans.com



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Robert W May is a Real Estate Broker in Lethbridge Alberta, having now been in the industry for over 23 years. . He was also a licensed Lethbridge mortgage broker and financing expert with Canada First Mortgage of Calgary Alberta for the past 10 years.  He is an industry leader always willing to help train and educate others in how to improve their business models for financial and personal benefit.




 

 

Comment balloon 0 commentsRobert May • December 08 2008 05:53PM

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