Everything you need to open new doors. Becoming an. Approved Lender

Transcription

1 Everything you need to open new doors Becoming an Approved Lender

2 CMHC helps Canadians meet their housing needs. As Canada s authority on housing, we contribute to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer objective housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of our operations. For more information visit our website at or follow us on Twitter, YouTube and Flickr. You can also reach us by phone at GO emili. Canada Mortgage and Housing Corporation (CMHC). All rights reserved. No part of this document or the content may be reproduced, modified, distributed, published, sold, licensed, broadcasted, retransmitted, circulated in any form or used in any way without the prior written consent of CMHC. CMHC is subject to the Privacy Act. Individuals have a right of access to CMHC controlled information about themselves.

3 Contents Section 1 Introduction...2 Section 2 Approved Lender Designations...2 Section 3 Becoming an Approved Lender...3 Section 4 Contacting CMHC...9 Appendix A Unencumbered Paid-up Capital Opinion Letter

4 1. INTRODUCTION In Canada, a lender must be an Approved Lender under the National Housing Act (NHA) to make, underwrite and/or administer mortgage loans insured by Canada Mortgage and Housing Corporation (CMHC). The purpose of this document is to explain the process and minimum requirements for becoming an Approved Lender under the NHA. 2. APPROVED LENDER DESIGNATIONS There are two types of NHA Approved Lender designations Full Status The full Approved Lender designation permits a lender to request CMHC mortgage loan insurance on housing loans which it makes, underwrites and administers for both 1-4 unit homeowner and 5+ multi-unit properties in all jurisdictions Limited Status The authority of a lender to request and obtain CMHC mortgage loan insurance may be limited to certain jurisdictions (by province or territory) within Canada, to loans that the lender underwrites or administers (services), and/or to particular insurance products (1-4 unit homeowner or 5+ multi-unit properties). Limitations on the scope of a designation will depend on the qualifications, expertise and/or federal, provincial and/or territorial incorporation and licensing of a lender, or as otherwise determined by CMHC. 2

5 3. BECOMING AN APPROVED LENDER 3.1. Applicable Regulations The Housing Loan (Insurance, Guarantee and Protection) Regulations came into force on January 1, 2013, and outline the minimum requirements to be designated as an Approved Lender in Canada. The Regulations can be accessed online at Criteria and CMHC Requirements It is incumbent upon the lender applying to be designated as an Approved Lender to demonstrate to CMHC that it meets and will continue to meet all applicable requirements for the designation. More specifically, the applicant lender must provide evidence, satisfactory to CMHC, that it has the authority to lend, underwrite and/or administer housing loans, is financially sound, and has the requisite experience, capability and resources to make, underwrite and/or administer CMHC-insured housing loans. As the particular circumstances and facts of each application are different, the information provided herein should not be viewed as an exhaustive set of criteria and information requirements. CMHC reserves the right to impose additional requirements at its discretion from time to time. In this context, it should be noted that in addition to the requirements identified below, additional criteria and requirements may apply in the case of lenders that make, underwrite and/or administer loans in relation to 5+ multi-unit properties. These requirements may differ from lender to lender depending on the lending model and the types of projects financed Incorporation and Authorizations Approved Lenders are required to provide proof of incorporation and demonstrate that they are legally authorized, in each jurisdiction within Canada that they operate, to make, underwrite and/or administer loans secured by residential real or immovable property and are in good standing with governmental regulatory agencies. Required Information Incorporation documents and, as applicable, letters patent and orders to commence and carry on business. Proof of legal authority to lend and/or service. As applicable, this may include but is not limited to licences, certificates of registration and/or permits to carry on business as a residential mortgage lender in each applicable jurisdiction. By-laws and Board resolution(s) authorizing or limiting the lending authority of the applicant lender. 3

6 Financial Soundness The applicant must demonstrate that its levels of funding, liquidity, quality of assets, profitability and growth are sufficient to meet its obligations as an Approved Lender for the making, underwriting and/or administration of CMHC-insured mortgages. Required Information Audited financial statement including balance sheet, income statement, statement of cash flows and notes for the last three years, as applicable. Where the Regulations require an entity to have at least $3,000,000 of unencumbered paid-up capital, provide legal opinion that the unencumbered paid-up capital is not subject to any security agreements or liens. Substantively, this legal opinion can be in the form of the letter attached as Appendix A. A copy of the entity s five year business plan showing projected levels of insured lending activity and sources of funding along with pro forma financial information. Confirmation that the lender is not being placed under any bankruptcy or insolvency procedure or wound up and has not received any notice in relation to insolvency or non compliance in relation to any regulatory regime to which it is subject which has not been resolved. If not the case, the applicant is to provide details. If available, a copy of the entity s recent business credit report prepared by a credit agency. Fidelity bond documents. A list of material creditors including their names, addresses and phone numbers. 4

7 Mortgage Capabilities and Resources The applicant is required to provide underwriting and administration policies and procedures to demonstrate the sufficiency of processes and controls in relation to data quality, data verification, authorities, staff training, fraud prevention, and safeguarding of information and systems. As applicable, to satisfy the Regulations 3 year minimum experience requirement, CMHC will consider the date of commencement of underwriting and/or administration operations. For applicants with previous uninsured residential lending experience, CMHC reviews previous arrears rates and foreclosure ratios. Required Information A written description of the entity s business model including information about: Sourcing, funding, servicing; Copies of two (2) funding arrangements. If the applicant is authorized to take deposits, the requirement to supply two funding arrangements may be waived, as applicable; Date of commencement of operations for underwriting and/or administration; Levels of controls, data quality, data verification, authorities; Processes to train and inform staff of changes; Description of the information technology (IT) environment, including: A description of the technical solutions used for mortgage underwriting, administration, security and communication; Where applicable, a description of any integration with third party systems and; The physical location of the applicant s and third party s data processing, communication and storage facilities. Fraud prevention/management; Safeguarding of confidential information and systems; and Ability to provide timely and accurate information on the performance of its mortgage loans. Underwriting policies, practices and procedures if applying for underwriting designation. Loan administration policies, practices and procedures if applying for the administration designation. If not applying for an administration designation, provide a copy of the agreement(s) with a qualified Approved Lender for that purpose. As applicable, statistical information about residential mortgage loans held, underwritten and administered by the lender, as well as related defaults and enforcement and foreclosure for the previous three years. 5

8 Ownership Applicants are required to provide detailed information related to ownership structure and control, and, as applicable, provide clarity around the various relationships between related entities such as its parent, affiliates or subsidiaries, and other Approved Lenders. Required Information A corporate ownership diagram outlining control structure. As applicable, information about the parent company/controlling shareholder, including the latest copy of its audited financial statements. Disclosure of direct or indirect relationships with other Approved Lenders Management Experience and Capabilities To demonstrate its experience and capabilities, the applicant must provide information related to the Board and the residential mortgage lending experience of the senior management team. Where the Regulations minimum experience criterion applies, the applicant is required to provide the employees number of years of residential mortgage or hypothecary experience. Required Information The curriculum vitae/biographies of senior mortgage officers involved in underwriting and/or loan administration indicating the employees number of years of residential mortgage or hypothecary experience in relation to underwriting and/or mortgage loan administration. A list of members of the Board of Directors with their present employment, positions and the names of other companies in which they hold directorships. 6

9 3.3. Application Process and Fees All applicants must complete and sign the application form, and provide CMHC with all requested documents and an application fee of $5,000 plus applicable taxes. The fee will be refunded if the applicant obtains the Approved Lender designation CMHC Review Process, Timeframes and Decision The applicant will receive a notification from CMHC within approximately 48 hours of receipt of an application acknowledging receipt. During the review process, CMHC may ask the applicant to provide additional information, which may include additional corroborating information or analysis from third parties. It is the applicant s responsibility to ensure that CMHC s information requirements are satisfied, and in a timely, clear and complete manner. CMHC strives to complete all application assessments in a thorough and prompt manner. As the review of each application is influenced by its own specific circumstances, the completeness of the information provided, and the applicant s promptness in responding to additional information requests, there is no specific time limit on the review of applications. Under normal circumstances, it should be anticipated that the process will take a minimum of 8-10 weeks. Should there be any material changes during the approval process that may have an effect on the application, the applicant must inform CMHC immediately and provide related information for review and consideration. An applicant may cancel its application at any time by providing written notice to CMHC. For cancellations, paid application fees are not refundable. Once the review is completed by CMHC, CMHC will issue a letter to advise the applicant of its decision Agreements and Forms Successful applicants are subsequently required to sign the approval letter and the emili Automated Approval Agreement to obtain access to emili. emili is CMHC s proprietary mortgage loan insurance decisioning system which approves or refers loan insurance applications for 1-4 unit properties to a CMHC underwriter based on an analysis of different risk factors. emili also provides access to CMHC insurance policies for 1-4 unit and 5+ unit properties, and facilitates claims. The Approved Lender will also be asked to sign the Accelerated Claim Payment Plan (ACPP) Agreement to streamline claims submission and payment. In addition, CMHC will require the completion of various forms to identify operational points of contact, request connectivity to CMHC via a 3 rd party supplier (as applicable) and enable electronic transfer of claims payments. Additional agreements and forms may be required, as applicable. 7

10 3.6. CMHC s Policy of Insurance The making, underwriting and/or administration of NHA-insured loans is subject to the terms and conditions contained in the CMHC Policy of Insurance. The Policy of Insurance comprises the terms and conditions set out in Part I of the NHA (prior to its amendment in 1999), the National Housing Loan Regulations (repealed in 1999, but which continue to apply by contract), the Master Loan Insurance Policy, the Insurable Housing Loan Regulations, the Handbook(s) containing additional CMHC policies and guidelines and the emili Automated Approval Agreement. In addition, subsequently released CMHC communications (Advices) also form part of and complement the terms and conditions that are in effect between CMHC and Approved Lenders. These and the information provided by CMHC in respect of housing loans are to be considered confidential and proprietary information of CMHC to be used for CMHC mortgage insurance purposes only and treated as such by the Approved Lender and its employees and agents. Once approved by CMHC, Approved Lenders can log-on to The HANDBOOK through emili to access CMHC Mortgage Loan Insurance policies online. Approved Lenders have the ability to make the content available to designated employees provided the secure access is strictly controlled by the Approved Lender s designated web security administrator. Changes and clarifications to the policies contained in The HANDBOOK are communicated to Approved Lenders via Advices. Highlights on CMHC s Mortgage Loan Insurance products can be accessed on CMHC s website at Probation Period Newly Approved Lenders undertaking insured loan underwriting or administration will be subject to an initial probation period. The end of the probation is subject to sustained satisfactory quality assurance and monitoring results. Generally, an Approved Lender on probation will be subject to: Required CMHC Mortgage Loan Insurance training (product, application processing, fraud prevention and default management). A review of a sample of underwriting and default management files within one year of the commencement of insured lending operations or as soon as 500 insured loans have been advanced. More frequent monitoring which can include random file referral to underwriters for additional validation and lender coaching, and 30/60 day arrears reporting. Restrictions on access to portfolio insurance. A higher level of claim post-payment verification. Restrictions on the use of lender correspondents. Given the usual time required to obtain sound/measurable quality assurance results on the lender s loan portfolio, the probation period can be expected to last approximately two years, assuming initial positive results. Generally, once the probation periods ends, CMHC may lift some or all of the applicable limitations and restrictions in effect during the probationary period. Some or all of the restrictions may be reapplied to Approved Lenders at any time should issues or concerns arise with respect to the underwriting and/or administration of the Approved Lender s portfolio. 8

11 4. CONTACTING CMHC Mail Insurance - Lender Administration Canada Mortgage and Housing Corporation 700 Montreal Road Ottawa ON K1A 0P7 lenderadmin@cmhc.ca 9

12 APPENDIX A Unencumbered Paid-up Capital Opinion Letter, 20XX Vice-President, Insurance Operations Canada Mortgage and Housing Corporation 700 Montreal Road Ottawa, Ontario K1A 0P7 Re: Approved Lender Application - Security Registrations Please be advised that we have acted on behalf of (the Applicant ) assisting the Applicant in its application to obtain/retain the Approved Lender designation with Canada Mortgage and Housing Corporation ( CMHC ). We have specifically been asked to provide to you a legal opinion, as external legal counsel to the Applicant, to confirm that the Applicant has agreed with all secured parties, creditors and lien holders that: notwithstanding any registration, agreement or provision to the contrary, that no security interest or lien will at any time encumber, attach to, or apply to at least $3 million of Applicant s paid-up capital and that none of the security registrations (if any) made against the Applicant, or its related corporations,, currently encumber, attach to, or apply to at least $3 million of Applicant s paid-up capital. In this regard we attach herewith current searches which we have completed, and which we certify to be true and correct summaries of the search results, as against the Applicant and its related entities, in the Province of. We confirm that the Province of is the sole province in which security registrations might be validly made against the Applicant, and its related entities, taking into account the location of its head office and the jurisdiction for perfecting a security interest in personal property of the Applicant that constitutes its unencumbered, paid-up capital. We confirm that we are familiar with the security agreements entered into between the Applicant, and/or its related entities, and the secured creditors referenced in the attached search summary, and specifically are familiar with the extent of the charge of the security interest pursuant thereto, and the terms of the relevant agreements as to the permitted sale of mortgages, free and clear of such security interests. We confirm that the security registrations made against the Applicant, and its related entities,, do not extend to and would not comprise a security interest, lien or encumberance as to at least $3 million of Applicant s paid-up capital. This opinion may be relied upon only by the addressee hereof, for the purpose of the approval of the Applicant to become an Approved Lender or maintain its designation. Yours truly, per: 10

13 For more information visit our website at or follow us on Twitter, YouTube and Flickr. You can also reach us by phone at GO emili.