by Josh Clark 
The Canadian Mortgage and Housing Corporation (CMHC) has announced a series of important policy changes, effective immediately for November 15, 2024, that will impact developers, lenders, and investors in the Canadian multi-unit residential sector. From appraisal requirements to rental achievement holdbacks, these updates will influence how borrowers structure their financing and navigate the ever-evolving lending environment. Below, we break down the key changes and their potential implications for your next CMHC MLI Select project. To learn more about the CMHC MLI Select program and requirements, check out our step-by-step guide here: CMHC MLI Select Step-by-step Process
1. Appraisals for All CMHC Multi-Unit Applications
Old Policy: Previously, no appraisal was required for multi-unit applications over 25 units.
New Policy: CMHC will now require appraisals for all multi-unit applications, regardless of project size.
Details: Appraisal reports must align with current industry standards, provide three market valuation methods, and have a valuation date within 12 months of application submission. This uniform approach enhances transparency and due diligence in the multi-unit lending process.
Key Takeaway: Every multi-unit project now needs an appraisal to prove its value. This helps CMHC ensure fair and accurate project assessments.
2. Qualifying Interest Rates for 10+ Year Terms
CMHC is returning to the dual test approach for qualifying interest rates on multi-unit applications with terms of 10 years or longer. Under this updated policy, the higher of the market interest rate or the contract rate will be used as the qualifying rate.
Impact:
- Loans with terms of 5 years or more were already subject to this approach, so the major shift is for borrowers considering a 10-year term.
- This may increase the attractiveness of 5-year terms for some borrowers, particularly those leveraging CMHC MLI Select. Given increased demand, 5-year term market spreads may rise as borrowers recalibrate their strategies to meet their desired debt service coverage ratios (DSCR).
Key Takeaway: Loans for 10+ years must qualify with the higher of two interest rates. This could push more people toward 5-year loans, raising their costs.
3. Environmental Site Contamination Policies
CMHC is now accepting applications for construction financing with known site contamination, provided the site is remediated before first advance. Borrowers must confirm a contamination-free environment before funds are released, supported by updated consultant reports. This policy gives developers more flexibility when dealing with sites that require environmental cleanup.
Key Takeaway: CMHC allows loans for polluted sites, but developers must prove the land is clean before getting funds. This adds flexibility for projects.
4. Updated Accessibility Criteria
As industry standards evolve, CMHC’s accessibility criteria for MLI Select financing will now reflect:
- CSA B651:23 standards
- Rick Hansen Foundation Accessibility Certification version 4.0
These updated benchmarks ensure that developments financed under the CMHC MLI Select construction loan program continue to meet leading accessibility standards, benefiting both developers and tenants.
Key Takeaway: Buildings financed under CMHC loans must follow updated accessibility rules, making them more inclusive for everyone.
5. Bonding and Alternatives to Bonding
CMHC typically requires 50% labour/material and 50% performance bonding on all major construction contracts. While bonding remains CMHC’s default requirement, it has now clarified alternatives, including:
- An irrevocable, unconditional letter of credit equal to at least 10% of hard costs
- Collateral security equal to at least 10% of hard costs
- Reduction of the construction loan amount by at least 10% of hard costs
For projects up to 24 units, bonding or alternatives may not be necessary if the borrower’s financial strength and contractor quality are satisfactory. This offers more flexibility for smaller developers, while ensuring adequate protection for CMHC.
Key Takeaway: Borrowers must show their projects are financially safe, but smaller projects may have more flexible bonding options.
6. Rental Achievement Holdbacks for MLI Select Construction Financing
When MLI Select was introduced in 2022, one of its biggest advantages was the waiver of rental achievement holdbacks, allowing developers to receive higher initial leverage.
New Policy: For CMHC MLI Select construction financing (including completion take-out), a rental achievement holdback or an effective gross income attainment metric will be required above 75% Loan-to-Cost (LTC) or Loan-to-Value (LTV), whichever is lower (70% for retirement homes).
Impact: Borrowers may face increased equity requirements and reduced up-front leverage. This could influence project viability and timelines, as developers may need to factor in holdbacks that were previously waived.
Key Takeaway: Developers must meet rental or income goals before receiving full funding. This ensures projects are financially viable.
7. Commitment to Insure & Lender Selection
CMHC has clarified that once a Certificate of Insurance (COI) is issued, the originating approved lender is expected to fund the loan per the conditions outlined in the COI. Borrowers must stay with the approved lender named on the COI unless there are exceptional circumstances.
Implications:
- This policy shift could reduce lender shopping or post-COI negotiations, impacting pricing transparency.
- Borrowers should identify their preferred lender before applying for CMHC insurance.
Key Takeaway: Borrowers are tied to their chosen lender after CMHC approval. Changing lenders is possible but rare and needs approval.
8. Lender Designations
CMHC now requires that Approved Lenders, agents, and related entities hold only one designation—either Approved Lender or Lender Correspondent—at the initiation stage of MLI business activities.
Why This Matters:
- Lenders must choose a single role and stick to it, enhancing regulatory clarity.
- This ensures equal status and improves transparency for borrowers when dealing with either a direct lender or a correspondent.
Key Takeaway: Lenders can only play one role, which simplifies things for borrowers and makes the process clearer.
9. Apartment Construction Loan Program (ACLP) Overhaul
Similar to MLI Select, the ACLP now uses a points-based scoring system that considers affordability, energy efficiency, accessibility, and other social outcomes. A new market/regional factor also gives preference to markets with a higher need for affordable housing, such as Toronto and Vancouver. Additionally, ACLP now includes options for student and retirement housing, broadening the scope of eligible projects.
Where to Learn More:
For the new scoresheet and ACLP fact sheet, visit the official CMHC website or reach out to your mortgage advisor for more details.
Key Takeaway: The updated scoring system focuses on funding projects that provide affordable and accessible housing in high-need areas.
Strategic Takeaways for Borrowers
- Reassess Financing Terms: With the return of the dual test approach for 10+ year terms, borrowers must weigh the pros and cons of choosing a shorter 5-year term for better leverage versus a longer term for potentially more stability.
- Prepare for Appraisals: All multi-unit loans will now require appraisals, adding an extra step and cost to the application process. Ensuring a timely, compliant valuation will be crucial.
- Factor in Environmental and Accessibility Requirements: Projects with known contamination can still proceed but must show a clean site before receiving funds. Also, adopting updated accessibility standards may broaden market appeal.
- Adjust to the New Rental Achievement Holdback: The return of rental achievement conditions may reduce immediate leverage. Borrowers should plan accordingly, considering increased equity injections or alternative financing structures.
Staying Informed and Prepared
In a shifting landscape, proactive preparation is key. With these MLI Select Updates, developers and investors must remain agile. Partnering with experienced professionals who understand CMHC guidelines, like New Homes Alberta, ensures you receive informed guidance tailored to your project goals.
For advice on navigating these changes or leveraging CMHC MLI Select programs to your advantage, reach out to our team. We work closely with CMHC-approved lenders to help you secure competitive financing solutions that align with the new regulations.
