CMHC’s May 28 Announcement

On Thursday, May 28, CMHC issued a notice to rental owners who have pending applications for CMHC insurance for re-financings in relation to CMHC’s Multi-Unit Mortgage Loan Insurance (5+ units). Prompted by an acceleration in applications for refinancing, CMHC imposed a new restriction on use of funds as a condition of insurance for market refinance loans.

Under the new rule, refinance proceeds must be used for a permitted purpose in relation to residential housing. This could include one or more of the following:

  • purchase,
  • construction,
  • capital repairs/improvements (including for increased energy efficiency and accessibility),
  • securing permanent financing (including take-out financing to pay off a short-term construction loan).
  • certain other uses permitted on a case-by-case basis (such as funding to deal with COVID-19 rent shortfalls).

The notice said that “in no event shall equity take-out or distributions to equity holders be permitted, pending industry consultations.” The notice referred to guaranteeing refinancing for equity take-out as an improper use of government resources, and urged CMHC clients to seek private sector solutions for these uses.

Since the announcement was made, CFAA has been in contact with CMHC at a high level. CMHC told CFAA that it has “stopped underwriting of pure ETO refi pending consultations on how to restrict our activities in an efficient way, and to ensure that rental housing continues to be built.” CMHC also states that it is “leaving the door open to post-construction pure ETO.”

CFAA has always had a strong, positive relationship with CMHC. CFAA will be meeting CMHC this week to discuss the proposed new rule and what triggered it, and to seek to avoid unintended negative consequences for rental housing providers.

We will advise further as more information becomes available and can be disclosed.