CMHC Loan Program

• Subject to CMHC’s Mortgage Loan Insurance requirements, CMHC Mortgage Loan Insurance is available to Approved Lenders for loans to construct, purchase, or refinance, with or without improvements, rental, licensed care, and retirement facilities in Canada.
• First and second mortgages are permitted.

• The loan relating to residential property may not exceed 85% of thelending value,as determined by CMHC.
• The loan relating to any non-residential components of a building may not exceed 75% of the lending value attributed to the non-residential component, as determined by CMHC.  Non-residential components may normally not exceed 20% of the gross floor area and loan amount attributable to the non-residential portionmay not exceed 20% of total lending value.

• The fee is payable by Approved Lenders at the time of the application.
• CMHC will retain an amount of the fees relative to the work done (minimum of 10 %) if the application is declined by CMHC or withdrawn by the applicant.  CMHC will retain the full fee once a mortgage insurance certificate is issued.
• The fee may be added to the mortgage loan.

The following surcharges may apply:

• Construction advances: 0.50%.  Two advances are permitted without the surcharge.
• Amortization extensions: 0.25% for each five-year period beyond 25 years, up to andincluding 40 years, not to exceed the remaining economic life of the property.
• Non-residential spaces: 1.0% of the portion of the loan related to these spaces.
• Retirement and licensed care facilities: 1.0% of the loan amount.
• Release of rental achievement holdback at rent-up: 0.25%.
• Second mortgages: 0.50% of first mortgage loan amount only.

• Premium payable is the full applicable rental premium on total loan amount minus the credit.  Minimum premium payable is equal to the full premium applied to the incremental additional funds.
• Premium credit is not available on previous surcharges for construction advances, release of rental achievement holdback at rent-up, or second mortgages.
• As an option, existing CMHC-insured loans are eligible to be refinanced to a maximum 65% LTV and premium is only paid on the new, additional funds.  For these “top-up” financing transactions no premium credit is available and the loan must retain its existing amortization.

• The premium is due and payable by Approved Lenders to CMHC as mortgage funds are advanced.
• The premium may be added to the mortgage loan.

• Minimum Debt Coverage Ratio (DCR) based upon agreed amortization period and the contract interest rate (minimum five-year term):

• The minimum required DCR may be greater in some markets.
• Typical initial loan term is five years.  CMHC may require a longer initial term.
• Typical amortization period is 25 years.  With CMHC’s concurrence, the maximummay be as long as 40 years with a premium surcharge.
• Amortization period shorter than 25 years may be imposed to mitigate risk.

• The interest rate at time of Interest Adjustment Date (IAD) can be either:
  1. a fixed interest rate (i.e. equal payment mortgage), compounded semi-annually andnot in advance; or
  2. a floating interest rate, provided a ceiling rate is established and the ceiling ratefalls within the range of posted fixed market rates being charged at the time on loans having similarterms within the same geographic area of the project.  The ceiling ratewill be used in calculating the debt coverage ratio (DCR).  Once repayment has commenced under a floating interest rate, borrower buy-downs, extensions toamortization period, and/or increases to principal balance are not permitted.

• CMHC requires that the borrower have a net worth equal to at least 25% of the loanamount, with a minimum of $100,000.
• When the borrower is a corporate entity, additional personal and/or corporate guarantees are required over and above the loan covenants.  The amount of additional guarantee required is 2% of the loan amount for each percentage in LTV ratio above 60%.
  1. For example, at 78% LTV the additional guarantee is 36% of the loan amount, and at 85% LTV the additional guarantee is 50% of the loan amount.
• For insured loans for the construction of new rental buildings, the additional guarantee during construction will be 100% of the loan amount until stabilized rents are achieved, at which time the guarantee will be reduced to the amount based on the formula described above.
• Where a borrower is refinancing an existing CMHC-insured loan, the amount of the guarantee is to be set at the greater of the sum of the existing guarantee in effect onthe existing loan and the guarantee on the top-up funds according to the policy above; or, the guarantee on the total loan amount(s) using the policy above.
• CMHC may require additional guarantees or security in certain cases as it deems appropriate.

• Loan cannot exceed 60% of lending value, as determined by CMHC.
• Exclusions from non-recourse include environmental liability and fraud.

• Where insured construction advances are requested, the loan amount to be advanced during construction will be based on the lesser of cost or lending value (subject to rental achievement holdback if applicable).
• CMHC will recognize the market value of land in the cost calculation.
• CMHC will normally require that a general contractor be engaged under a fixed-price contract with bonding equal to 50% on labour and materials and 50% on performance.  CMHC may allow for some flexibility in this requirement for projects with fewer than 24 units.
• Construction costs must be reviewed and recommended by a third-party cost monitor (normally a Quantity Cost Surveyor) reporting to the Approved Lender, who must carry sufficient liability insurance.
• Interim financing must be verified.
• First and last advances must be approved by CMHC.  The Approved Lender has the option to approve advances occuring between the first and last.

• For new construction, the loan may be advanced up to the lesser of 75% of costs orlending value (70% for licensed care and retirement facilities).  The remainder of the loan will not be advanced until the project has achieved stabilized rents, defined asincome sustained at the projected rent level through at least one full operating year.
• Stabilization period may be waived for a surcharge of 0.25% (release of rentalachievement holdback at rent-up).
• Insurance applications for mortgage loans on existing structures with substantial capital improvements may be advanced to the greater of 85% of “as is” value (assuming rental income is not disturbed), or 75% of “as improved” value using projected rental income and a rental achievement holdback, if:
  1. the building is being fully or substantially vacated such that operating income is disrupted; or
  2. there is clear evidence that the improvements will directly lead to sustained, permanent increases in rents.

• One new insured first mortgage may be registered to replace existing mortgage debt.
• An existing first mortgage amended to include a pari passu clause plus an additionalmortgage charge with pari passu security ranking (i.e. equal ranking mortgage) may be registered.  If pari passu, both mortgages must be administered by the same Approved Lender at all times.
• An existing first mortgage plus the registration of a second mortgage charge.  A second mortgage is permitted as an interim measure until term renewal of the first mortgage.  At term renewal,the first and second mortgages must either be combined into one new first mortgage, or both mortgages must be given pari passu security ranking.  Expected prepayment penalties on the first mortgage may not exceed 20% of the lending value.  Second mortgages must contain a cross-default clause stipulating that a default under the first mortgage causes a default under the second.

• Enhanced underwriting flexibilities are available for new additions to the affordable rental housing stock.  This includes new construction, conversion from non-residentialto residential and replacement of affordable units, for example, as a result of demolition.
• Units must be modest in size, design, and amenities in relation to other rental units in the market.
• Minimum project size of five units.
• The degree of underwriting flexibilities is dependent on the level of affordability of therental units.  See Affordability Criteria section below.
• Majority of the units in the project must meet affordability criteria.

Three levels of affordability have been identified.  The criteria for each are as follows:

Level 1

• Self-contained apartments: majority of rents in the project are below the 80th percentile*.
• Retirement facilities (facilities providing shelter and support services): majority of rents in the project are below the 80th percentile* for the same project type andservice level in the market.
• Licensed care and special purpose facilities: majority of the beds are receiving perdiem subsidies aimed at reducing shelter costs and term of subsidy is less than the amortization of the mortgage.
• Single room occupancy: majority of the units in the project rent for less than 60% of the median rent for one-bedroom units in the market.

Level 2

• Self-contained apartments: majority of rents in the project are below the 65th percentile*.
• Retirement facilities (facilities providing shelter and support services): majority ofrents in the project are below the 65th percentile* for the same project type and service level in the market.
• Licensed care and special purpose facilities: majority of the beds are receiving perdiem subsidies aimed at reducing shelter costs and term of subsidy is equal to theamortization of the mortgage.
• Single room occupancy is not eligible under Level 2.

Level 3

• Projects receiving funding under the federal-provincial / territorial Affordable Housing Initiative (AHI) agreements.
• Other projects will be considered that have a similar risk profile to AHI funded projects provided the rents are at levels targeted to meet the needs of households on or eligible to be on a social housing waiting list (generally at or below the 50th percentile* of rents for similar units in the same market).

* A given rent percentile is the point in the distribution (smallest to largest) of surveyed rents below which that per cent of rents would fall.  For example, if the 80th percentile rent is $700, then 80% of all surveyed units would have rents that fall below $700.  CMHC publishes the rent levels semi-annually.  Note that project rents must also be deemed to be below the market rent of comparable properties in the neighbourhood.

Borrowers can be private, public, or non-profit entities.  The following eligibility criteria applies to Affordability Levels 1, 2, and 3.

• Property Management Experience – Borrowers must have at least five years experience operating a housing project of similar type and size.
• Credit and Repayment History – Borrowers must have at least break even cash flow over the past five years (financial statements required as evidence) and an excellent credit and repayment history.
• Construction Management Ability – Borrowers must demonstrate that they have successfully completed a similar project on time and within budget.  Otherwise, borrowers must enter into a fixed price contract with a general contractor who has experience building projects of similar size, cost, building form and construction type in the same market area.  Borrowers must have a demonstrated ability to withstand unexpected increases in construction cost.

For newly formed groups the following substitutes will be considered:

• Property Management Experience – Borrowers may enter into a long term contract (minimum five years) for the management and operation of the project with a company that has at least five years experience operating a housing project of similar type and size.  This could include a parent / affiliated company or a professional property management firm.
• Credit and Repayment History – Borrowers must provide either collateral security or the guarantee of an entity which meets the borrower eligibility criteria (the collateral or guarantee is required until the borrowing entity accumulates five years of excellent credit and repayment history).  Alternatively the debt coverage ratio requirement based on actual rents will be increased by an increment of 0.10.
• Construction Management Ability – Where a construction management approach is used, the construction management must be contracted to aparent / affiliated company that meets the construction management eligibility criteria and a formal arrangement must be in place with the parent company related to the project’s development.

• CMHC typically permits flexibility in net worth and guarantee norms for affordablehousing projects.

• Level 1 – The loan relating to the residential property may not exceed 95% of the lending value, as determined by CMHC.
• Level 2 – The loan relating to the residential property may not exceed 95% of the lending value, as determined by CMHC.  (Maximum of 95% of agreed costs on a case-by-case basis).
• Level 3 – The loan relating to the residential property may not exceed 95% of agreed costs.

• For Affordability Levels 1 and 2, standard premium surcharges apply as required.
• For special purpose facilities meeting Affordability Levels 1 or 2, the retirement and licensed care facilities surcharge of 1.0% applies.

Level 1 – 10-year term

• Minimum DCR of 1.20 using market rents (1.40 for licensed care, retirement ands pecial purpose facilities).  Calculated before fees and premiums are added to the loanand excluding reserve requirements; and
• Minimum DCR of 1.10 using actual rents inclusive of fees, premiums and reserves.

Level 2 and 3 – 10-year term

• Minimum DCR of 1.00 using actual rents inclusive of fees, premiums (when applicable)and reserves.

Where the term is less than 10 years an additional DCR requirement of 0.10 is required.

Reserve Requirements

Reserves are required to mitigate the risk from cash flow fluctuations.  Flexibility in reserve requirements may be considered where the risk of fluctuations is mitigated by an alternative, e.g. rent subsidy commitments, collateral security, or guarantees from partners.

Level 1 - Release of rental achievement holdback at rent-up with no surcharge; or waivingo f rental achievement holdback for 0.25% surcharge.

Level 2 and 3 - Waiving of rental achievement holdback with no surcharge.

Level 3 - Staged Grants: Once funds under the federal-provincial / territorial affordable housing initiatives agreements are unconditionally committed to a project, lenders maycommence insured loan advances.  These funds no longer need to be injected up front.  All other equity from the sponsor continues to be required prior to any advancing.

• In exchange for a cash donation a non-profit group, without charitable status, may elect to transfer the premium discount, to which they would normally be entitled, to adonor.  The donor can use the premium discount on a future application for mortgage insurance in the name of the donor.  The amount of the transferable premium discount is the lesser of 60% of the donation or the dollar amount of the premium discount to which the non-profit group is entitled.  The premium discount will be provided to the Approved Lender but can be transferred by the donor to any Approved Lender.