Canada: Legal Update Regarding Mortgage Insurance

Last Updated: June 23 2015
Article by Simon R. Fitzpatrick

Most Read Contributor in Canada, September 2018


- Canada's regulatory and supervisory framework of its residential mortgage market has undergone significant change in the aftermath of the financial crisis

- The most recent and long-awaited changes to the regulatory framework were released on June 6, 2015, when the Finance Department published amendments to two sets of regulations governing the role of mortgage loan insurance in Canada

- The "Regulations Amending the Insurable Housing Loan Regulations" (the "CMHC Regulations") and the "Regulations Amending the Eligible Loan Regulations" (the "Approved Insurer Regulations" and, together with the CMHC Regulations, the "Proposed Regulations"), represent the Federal Government's legislative response to its stated policy initiatives regarding the prudent use of mortgage insurance that were first outlined in Canada's Economic Action Plan released in March 2013 and subsequently restated in each of the 2014 and 2015 federal budgets

- The Proposed Regulations replace earlier proposals published by the Finance Department in August, 2014, and are scheduled to come into force on January 1, 2016

- The Regulatory Impact Analysis Statement ("RIAS") prepared in respect of the amendments listed three objectives:

  1. Prohibit the use of taxpayer-backed insured mortgages as collateral in securitization vehicles that are not sponsored by the Canada Housing and Mortgage Corporation ("CMHC")
  2. Restore lender use of government-backed portfolio insurance to its original purpose – the funding of Canadian housing loans through CMHC securitization programs
  3. Providing a transitional period for affected mortgage lenders to adjust to the Proposed Regulations

Legislative Framework:

- Pursuant to the National Housing Act (Canada)[1](the "NHA"), the federal Minister of Finance is given statutory authority to specify the terms or conditions relating to the guarantee of payments under securities that are issued on the basis of Canadian housing loans, including the passing of regulations establishing criteria that must be met in order for mortgage insurers to provide mortgage insurance against risk[2]

- The CMHC Regulations will apply to mortgage insurance provided by CMHC and the Approved Insurer Regulations will apply to mortgage insurance provided by "approved mortgage insurers" pursuant to the Protection of Residential Mortgage or Hypothecary Insurance Act (Canada)[3]

- CMHC and the "approved mortgage insurers" may only insure "eligible mortgage loan" risk, the criteria for eligible loans are prescribed in the Insurable Housing Loan Regulations[4] and the Eligible Mortgage Loan Regulations[5], respectively – and it is this criteria that is being amended and supplemented by the Proposed Regulations

The Amendments:

The Proposed Regulations do two things. Firstly, they establish a new eligibility criterion for each of high ratio mortgage loans (those with loan to value ratios of greater than 80%) and low ratio mortgage loans (those with loan to value ratios of equal to or less than 80%) to qualify for mortgage loan insurance, and secondly, they prescribe "transitional provisions" for compliance with the new criteria.

High Ratio Loans

With respect to high ratio loans, the Proposed Regulations require that if a high ratio loan "is part of a pool of loans on the basis of which securities have been issued after December 15, 2015, [then] all securities issued on the basis of the pool must be guaranteed under subsection 14(1) of the NHA"[6]. The impact of the new criterion is to ensure that high ratio insured mortgage loans, if securitized, will be funded through CMHC securitization programs – namely the NHA MBS program or the Canada Mortgage Bond program – which securities are guaranteed by CMHC and backed by the Government of Canada. The amendment reflects the Federal Government's policy that the use of taxpayer-backed insured mortgages as collateral be limited to securitization vehicles that are sponsored by CMHC.

Low Ratio Loans

Although low ratio loans represent less risk of default, the Proposed Regulations stipulate that low ratio portfolio insured mortgage loans "must be part of a pool of loans on the basis of which securities that are guaranteed under subsection 14(1) of the NHA have been issued". The Proposed Regulations do provide for several exceptions, including the "six-month rule". The first exception is applicable if a mortgage loan was included in such a pool of loans for at least one day in the previous six months or if the loan was not insured. This exception is intended to address loans that have been released upon the maturity of a NHA-backed security or if the loan is not insured. Other exceptions apply to mortgage loans that were not part of such a pool because they had fallen into arrears and the "legacy covered bond exception" which allows new insured loans to be added to pools if no new securities in respect of such pools have been issued after December 31, 2015. The Proposed Regulations also specify that the new eligibility criterion for low ratio loans does not apply to loans that are insured on an individual basis.

A further exception for low ratio loans is stipulated where (a) 97% of a lender's insured low ratio loans (excluding loans insured on an individual basis) otherwise fit into one of the prescribed exceptions, or (b) are exempt from having to satisfy the new criteria (i) because the low ratio loan was not in a pool of loans on the basis of which securities have been issued if the application of mortgage insurance in respect of the loan was received by the mortgage insurer prior to January 1, 2016, or (ii) due to the transitional provisions prescribed in the Proposed Regulations. The effect of this exception permits a lender, subject to meeting the other requirements, to maintain portfolio insurance coverage of 3% of its low ratio mortgage loans without having to include such loans in a CMHC sponsored securitization or otherwise fall into one of the prescribed exceptions.

As a final point regarding low ratio loans, it is significant that the RIAS specifically stated that a failure to comply with the six month rule would result in a mortgage insurer being required to cancel the applicable mortgage insurance.

Transitional Provisions

Compliance with the Proposed Regulations is subject to the "transitional provisions" which are designed to allow affected lenders to adjust to the new measures within certain prescribed time periods and based on the size of its insured mortgage pool determined on June 30, 2015.

During the period from January 1, 2016 to December 31, 2017, the new eligibility criteria do not apply to a loan that is part of a pool of loans on the basis of which securities were issued prior to January 1, 2016 if the total amount of all insured loans in that pool does not exceed the total amount of all insured loans that were part of that pool on June 30, 2015.

During the period from January 1, 2018 to December 31, 2020, the new eligibility criteria do not apply to a loan that is part of a pool of loans on the basis of which securities were issued prior to January 1, 2016 if the total amount of all insured loans in that pool does not exceed 50% of the total amount of all insured loans that were part of the pool on June 30, 2015.

The transitional provisions do not provide for relief for the period after December 31, 2020.

Comment Period

Interested persons are invited to make representations concerning the Proposed Regulations to the Department of Finance by July 6, 2015. All representations must cite the Canada Gazette, Part I, the date of publication (June 6, 2015) and are to be addressed to Wayne Foster, Director, Capital Markets Division, Department of Finance, 90 Elgin Street, 13th Floor, Ottawa Ontario K1A 1G5, email:

This legal update is based on the proposed regulations of the Department of Finance as published in the Canada Gazette, Vol. 149, No. 23, pp.43-51.


[1] R.S.C. 1985, c. N-11.

[2] R.S.C. 1985, c. N-11, subsection 8.1(1) and subsection 14(1)

[3] S.C. 2011, c.15.

[4] SOR/2012-282

[5] SOR/2012-281

[6] Subsection 14(1) of the NHA provides: "The Corporation [CMHC] may — with the Minister of Finance's approval and any terms or conditions that are specified by him or her — guarantee payment of any or all of the principal or interest, or both, in respect of securities issued on the basis of housing loans. The terms and conditions may, among others, relate to the amount and price of the guarantee, the characteristics of the securities to be guaranteed and the manner in which the securities are to be issued."

To view original article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions