Does CMHC Discriminate against Certain Groups of Society?

[Mike Milovick]

QUOTE (gwasser @ Oct 16 2009, 10:25 PM) It is more about the risk that the banks perceive regarding lending in a certain type of properties or certain forms of income."

Hi Godfried;

So we are clear, which bank is taking the risk on a CMHC insured mortgage?

Mike

 

[Mike Milovick]

Hi Garth;

That`s a pretty good point. I wonder if the human rights people would agree with you on that. If you follow your thought a little further, I could decide arbitrarily that I don`t like electricians. So a rental applicant that is an electrician can be declined, in this secnario, on that basis.

So what you are saying is since occupation is not explicitly covered as one of your points below, in theory, if you don`t like someone, you can decline then on an occupation basis. Maybe that`s the answer since you can`t decline rental applicants on age, race, gender etc.

I don`t think so.

Mike



QUOTE (GarthChapman @ Oct 17 2009, 12:31 PM) As I remember it, our Constitution declares that one cannot discriminate based on charactaristics like:
-Race
-Religion
-Age
-Sexual orientation
-Gender

I don`t think students are on the list, nor are landlords.

 

[Mike Milovick]

Hi Neil;

Let`s follow this further. CMHC is government backed, just like, say, OHIP.

Imagine having a child, born with a serious illness and applying for OHIP card.

OHIP comes back and says no. Baby is high risk. Baby doesn`t match the program`s risk aversion level. "We have analyzed the statistics and it doesn`t match our expected profit/loss with premium. Application is denied."

You tell me what you think. 100% its discrimination against students. 100%.

Mike

QUOTE (investmart @ Oct 16 2009, 11:02 PM) Hi Mike,
Who are they discriminating against? those students did not apply for a mortgage! we do.
Many investors do not buy students housing. It does not mean they discriminate against students because by not purchasing they do not do anything against students.
They simply look for a property with a risk that matches their risk aversion level.
Another example: car insurance companies charge divorced people more (reminds me I have to call them). They do not discriminate against divorced people, they simply use statistics to match expected profit/loss with premium.
Regards,
Neil

 

[PaulPoulsen]

QUOTE (MikeMilovick @ Oct 18 2009, 09:01 AM)
Hi Godfried;



So we are clear, which bank is taking the risk on a CMHC insured mortgage?



Mike




So banks should hand out mortgages willy-nilly to whoever applies for them even if the properties or borrowers don't meet a specific criteria because if the mortgage holder defaults, CMHC will pick up the tab anyway?



The banks decide all the time who they will and won't do business with. Bad credit? No mortgage. No down payment? No mortgage. Net worth isn't high enough? No mortgage. Appraisal doesn't come in high enough? No mortgage.

 

[housingrental]

Hi Mike,



Re "



How about this Neil? Assume you own a duplex. This year you like the prospects of renting to students. So the families move out and you pop in students. Then you turn around and try to sell the building. Its still a legal duplex. But it is now considered "student housing" because its occupants are students. Do you not think there could be something wrong with this type of system that our tax dollars are supporting? "



Yes this is a huge problem

However, at least in a Waterloo context, often the house with basement apartment is worth 240k if not in a student area and the exact same duplex a few km over walking to distance to the schools sells for 360k. So if you were the insurer wouldn't it be greater risk?










QUOTE (MikeMilovick @ Oct 17 2009, 11:35 AM)
Ni Neil;



The last time I checked, CMHC was a government institution. Its not your local bank. Do you not think there might be something wrong with a system that arbitrarily classifies a building as "student housing" and deems it proper to not fund it?



How about this Neil? Assume you own a duplex. This year you like the prospects of renting to students. So the families move out and you pop in students. Then you turn around and try to sell the building. Its still a legal duplex. But it is now considered "student housing" because its occupants are students. Do you not think there could be something wrong with this type of system that our tax dollars are supporting?





Sub in the word student and put in visible minority. Maybe you can follow my thought process.



Mike

 

[housingrental]

Your right, not much if any. The last few years have played out exceptionally well for student investors in Waterloo. Interest rates have decreased, financing went from minimum 25% down payment to 20%, rents increased, vacancy`s have been low, there`s been a huge increase in demand for investment real estate in Waterloo from outside purchasers. It could have easily played out differently... and could in the next few years...

I think, but not certain that:

62 Helene (or 58 Helene)
560 Glen Forrest

were both power of sale, or about to be at least.




QUOTE (MikeMilovick @ Oct 17 2009, 11:36 AM) Adam;

Show me one legal, student property in Waterloo that has been sold power of sale in the last nine years (since I have been a realtor).

If a property is not legal, it should not be classified as student housing.

Mike

 

[AdamBlackmore]

Andrew,

Great point. This financing barrier is extremly frusterating for myself, as I see student housing in the Waterloo area as an excellent investment. I`ve put a lot of research into the area of student housing and it seems you now must put down 35% regardless and may have to take commerical interest rates on top of it! Talk about ruining your ROI! I`m a beginning investor with just one invesment property, but student housing is what I`ve been putting all my efforts into researching due to high ROI and that I feel I understand the demographic (Am a high school teacher and have only been out of being a student living in student housing for a couple years).

As Mike mentioned earlier, legal student properties in strong areas simply don`t go into default yet you must do 35% with commerical rates? However, if you can down 10% for a triplex and stick non-student 20 year olds in it.......not an issue. Yet what is the bigger risk? Yes, I realize that CHMC cannot possibly monitor the age of tenants, but my point is that the financing for student vs. non student properties is ridiculously disproportionate.

These are LEGAL properties Mike is referring to, many with proven year over year 0 vacancy rates and high rent to purchase price ratios. Not chop shops that risk being shut down at any time by the city. Essentially the issue I have is CHMC has lumped ALL student rentals into the "no good" pool, rather then look at a few simple facts. A well built legal triplex a few hundred feet from the University doors seems a safe bet to me!

I wondered Andrew`s point as well. How does CHMC even know if it is a student rental? They don`t care about any other demographics that are tenants... yet some are high risk. If you purchase a property and are renting it to "mainstream" renters and convert to student, are you risking having your financing pulled?

I`ve put a lot of hours into researching student housing and I`m feeling very frusterated I may have to switch my entire investment strategy and demographic around due to CHMC recently making it MUCH hard to qualify for student rentals.

Adam.

 

[AdamBlackmore]

Adam,

I don`t believe the 20% (or 25%) is available anymore for student housing..... I`d be fine with 20%... not 35% with commerical interest rates.

Adam.

 

[smmcguire]

QUOTE (MikeMilovick @ Oct 16 2009, 07:33 PM) Dear REIN Members;

Recently I have had legal fourplex (think apartment building) declined on the basis that the appraisal deemed the building as "student lodging." Occupants were indeed students, but each unit was rented as a household - one lease.

I was just curious if anyone was aware of CMHC blatantly discriminating against other visible groups other than students? I am not sure if most people are aware, but CMHC also does not finance lodging houses - affordable accommodation for many down and out segments of our society.

Is anyone aware of other instances of discrimination by this government organization? Does anyone have anything in writing from a bank indicating a decline based on type of tenancy?

Maybe they are using up all their reserves (and our money) on Windsor defaults so there is nothing left for these types of properties?

Feel free to post or contact me direct.

Mike Milovick

see globe and mail oct.17,2009 (business section)
cmhc is a for profit business run under the crown to provide a safety net(insurance) for the lender.
currently cmhc is running over its prescribed insurance tolerance allowed by the gov`t.
the cap was just recently raised from 400. b to 600. b ,which is almost double it`s limit put in place in 2007.
the reason for a cap is the tax payer is ultimately the back stop for mass default.
cmhc is simply picking the least risk for its shareholder,the tax payer,and as we know, investment property accounts for 4 percent of the market and 80 percent default.


I would say they are definetly discriminating,but not for the reasons people are posting.

 

[Thomas Beyer]

QUOTE (JimWhitelaw @ Oct 17 2009, 08:35 PM)
Mike, I think you're kinda missing the point. This isn't a case of discrimination against students, or against you on the basis of how your tenants spend their waking hours. Generally, when lenders, insurers, etc refer to "student housing" they mean housing that is rented by the room or to a group of unrelated individuals. It's not specifically the fact that the renters are "students". The reality is that kind of rental represents a different kind of risk for them and so they treat it differently (yes, they "discriminate"). No big deal there, we've seen several other cases of legit discrimination in this thread. In areas where student housing is not common, many landlords would screen out (discriminate against) a group of unrelated people in favour of a family or group of relatives for the same reasons.



In your case, perhaps you can go back to CMHC with your leases and try to make the case that you're not renting by the room and that the building should be re-classified. However, if your leases each show 2-4 unrelated tenants on them, you're likely to still be classified as providing "student housing".


Indeed !!



CMHC's role is to provide insurance to lenders based on reasonable assumptions. One such reasonable assumption is that houses occupied by students / rented to students frequently are too expensive, i.e. the value is not the house but through the inflated income approach it generates !



i.e. are you sure that CMHC declines based on "occupied by students" or on "value" ? Likely the latter because that same house not rentable to students might be 25-40% less !!



The reason why traditional banks don't lend to the degree you like is likely inflated values !



A house with 6 rooms rented at $500/room or $3000/month would likely be rentable to a family only for $1600 or so .. and such would be valued LOWER.



Also often (but not always) 2 or 3 of the 6 rooms are likely borderline legal, i.e. basement suites or not zoned for such rentals.



Hence the justifiable cautious approach by banks and CMHC as the bank's mortgage insurer !



i.e they differentiate between "rooming house" and "student housing" and "permanently occupied" and "single family, not rented" and "government subsidized AISH housing" and "vacation home, occasionally rented" !



Is this differentiation "discrimination" or just "common sense" ?

 

[JimWhitelaw]

QUOTE (MikeMilovick @ Oct 18 2009, 08:59 AM)
I am not missing anything. So, in your opinion, its fair for a government organization like CMHC to choose NOT to insure mortgages on properties rented to lower income people - like lodgers (shared accommodation) and students?


Absolutely, that's fair. They also charge different premiums and have lower LTV requirements for multi-unit (5+) buildings, so what? Different risk profile, different rules. This is not an issue of human rights discrimination against tenants, it's about the risk profile of the borrower. CMHC obviously believes that having your suites rented to students makes you a higher risk and so they won't insure your loan.



Property insurance has similar restrictions; you'll likely pay higher premiums or even be denied insurance from some companies for buildings deemed to be student housing. (Might want to double check with your insurer to be clear if you're covered properly or not).



Nothing sinister going on here, just risk assessment.

 

[housingrental]

You're correct it's not (or if available not at a reasonable interest rate)

My post was noting that the percentage down dropped over the last few years (until recently) ie this helped push up demand for it and valuation / financing options


QUOTE (KW1 @ Oct 18 2009, 04:49 PM)
Adam,



I don't believe the 20% (or 25%) is available anymore for student housing..... I'd be fine with 20%... not 35% with commerical interest rates.



Adam.

 

[housingrental]

Hi Thomas

I also responded to your post on this in the other area.

You`re correct the properties Mike are referencing have much higher rent if occupied by students.

However all of them are outright legal. Registered with the city with lodging licenses or multi-plex or accessory apartments. Fire department and ESA no deficiency`s letters. Regular servicing from professional smoke detector and extinguisher companies. Inspections from fire department.

Some of these properties have been nothing but a student rental for 20+ years.

Should it really have relevancy that my 9 bedroom house, thats safer than most non rental properties, can only be rented to a family for $1300/month ? But I`m currently getting $3800/ month ? And I got $3600/month last year ? And similiar idea in past years.. And that it was originally licensed for this apx 23 years ago ? And has been continuously operating as a student residence for this time?

How would the above property that has 100% occupancy and 100% collection, was rented 9 months in advance, and have no deferred maintenance be higher risk than a nearby 50 year old non student multi-plex with deferred maintenance, and lower occupancy and collection rates?


QUOTE (thomasbeyer2000 @ Oct 18 2009, 09:35 PM) Indeed !!

CMHC`s role is to provide insurance to lenders based on reasonable assumptions. One such reasonable assumption is that houses occupied by students / rented to students frequently are too expensive, i.e. the value is not the house but through the inflated income approach it generates !

i.e. are you sure that CMHC declines based on "occupied by students" or on "value" ? Likely the latter because that same house not rentable to students might be 25-40% less !!

The reason why traditional banks don`t lend to the degree you like is likely inflated values !

A house with 6 rooms rented at $500/room or $3000/month would likely be rentable to a family only for $1600 or so .. and such would be valued LOWER.

Also often (but not always) 2 or 3 of the 6 rooms are likely borderline legal, i.e. basement suites or not zoned for such rentals.

Hence the justifiable cautious approach by banks and CMHC as the bank`s mortgage insurer !

i.e they differentiate between "rooming house" and "student housing" and "permanently occupied" and "single family, not rented" and "government subsidized AISH housing" and "vacation home, occasionally rented" !

Is this differentiation "discrimination" or just "common sense" ?

 

[gwasser]

I think what we`re talking about has nothing to do with discrimination and everything with the `rules of the sandbox`. Apparently it is a CMCH rule not to insure student properties for whatever reason. Apparently CHMC considers student rentals high risk and it treats all these properties the same, whether they are in Alberta or in Waterloo and it does so regardless whether the properties are of as good a quality as the ones in Waterloo or whether they are the stereo typical student rental place.

Those happen to be the rules of the sandbox, whether you like it or not. Of course, REIN members are action oriented and we have great resources like Peter Kinch and associates. So you could try approach CMCH and convince them otherwise. You could do this by yourself or as a group of REIN members specializing in student housing with or without the help of people such as Peter. This seems to me a lot more constructive than having a discussion on whether there is discrimination or not.

Hope this helps.

 

[Thomas Beyer]

QUOTE (housingrental @ Oct 19 2009, 05:53 PM) ...

Should it really have relevancy that my 9 bedroom house, thats safer than most non rental properties, can only be rented to a family for $1300/month ? But I`m currently getting $3800/ month ? And I got $3600/month last year ? And similiar idea in past years.. And that it was originally licensed for this apx 23 years ago ? And has been continuously operating as a student residence for this time?
Should it have relevancy .. yes .. but often it does not in the eye of the beholder/lender/insurer as there is risk that the city changes the rules because, for example, neighbors complain about 9 tenants in one house next door .. so there is FAR MORE RISK than this same house rented to a family for $1300 !

You operate successfully in a niche called: student housing in single family homes .. and niches don`t get insured/financed well !!

So enjoy the cash-flow and success while it lasts !!

 

[mortgageman]

Actually, because CMHC is a government agency it is not allowed to discriminate in any way other than credit worthiness, debt servicing ability, building value, etc.. This is why they will not provide mortgage insurance on age-restricted condo complexes, etc. If there is an age restriction, say no one under 18 years old for example, you have to use a lender who will deal with Genworth for mortgage insurance.

 

[Alvaro Sanchez]

This has nothing to do with students... 4plex = 4 leases... 4plex= 1 lease.. is risky.. from inside it looks like no risk as you have all details from the outside looks risky. (The more leases you have the lower overall risk..That's why I now look for multi-units instead of single units).




QUOTE (AndrewB12 @ Oct 17 2009, 09:54 PM)
Hey Godfried, I agree with you. I just want to throw this out there-



Every time I apply for a mortgage the banks will want to see my leases. They have never asked me who the tenant is, where they work, or anything about them...



I understand that 'lodging houses' are a higher risk and that is probably easy to track. However, how do banks know that any student house (legal single family/duplex/whatever -with students living in it) is a higher risk since they never ask for tenants info. This deal is not a student lodging house but a legal 4plex. So why is CMHC getting involved with who the tenants are?



4plex rented to 4 groups of people = good.

Same 4plex rented to 4 groups of students = horrible student 'lodging' house - don't finance.

This doesn't make any sense to me.



What if he called up CMHC and said "hey, good news. I talked the students into dropping out of school. Now they are not students, will you insure this 4plex now"

 

[BrianPersaud]

QUOTE (mortgageman @ Oct 20 2009, 02:23 PM) Actually, because CMHC is a government agency it is not allowed to discriminate in any way other than credit worthiness, debt servicing ability, building value, etc.. This is why they will not provide mortgage insurance on age-restricted condo complexes, etc. If there is an age restriction, say no one under 18 years old for example, you have to use a lender who will deal with Genworth for mortgage insurance.


I guess there may seem to be discrimination because bad properties are in bad part of town and may have a high proporation of people belonging to a certain socio-ethinic group. CMHC could value the property way off the market or decide not to finance the property...which can keep certain cities or certain neighborhoods in rough shape for a longer period of time.

I see discrimintation in the states a lot more. Banks simply won`t finance properties in certain neighborhoods leaving them to stay as a ghetto...essentially everyone living there has no choice but to live there because people who actually would choose to live tehre can`t get financing so they go into another area of the city.

 

[housingrental]

Thanks Thomas

My understanding, at least in a Waterloo context, is there no possibility that the city can change the rules for currently operated places. Ie they can for new places currently operating as single family but if they downzone an area, etc.. they have to grandfather in the currently licensed / legal and registered units.

So for example accessory apartments were provincial legislation allowing secondary units throughout Ontario regardless of municipal zoning (NDP )
Legislation changed on this allowing cities to opt out in apx. 1995. (Conservatives)
Waterloo does not allow new accessory apartments.
However if the property gets registered with the city that it was operating prior to the cut off date in 1995 it`s legal even if zoning only allows single family.
My (limited) understand is that in Ontario there is no way for a city to remove the legality of the unit in the future.



QUOTE (thomasbeyer2000 @ Oct 20 2009, 01:30 PM) Should it have relevancy .. yes .. but often it does not in the eye of the beholder/lender/insurer as there is risk that the city changes the rules because, for example, neighbors complain about 9 tenants in one house next door .. so there is FAR MORE RISK than this same house rented to a family for $1300 !

You operate successfully in a niche called: student housing in single family homes .. and niches don`t get insured/financed well !!

So enjoy the cash-flow and success while it lasts !!

 

[housingrental]

I hadn't given much thought to that but wasn't that part of the idea behind freddie mac/fannie may? To facilitate home purchases in those areas?




QUOTE (BrianPersaud @ Oct 20 2009, 05:49 PM)
I guess there may seem to be discrimination because bad properties are in bad part of town and may have a high proporation of people belonging to a certain socio-ethinic group. CMHC could value the property way off the market or decide not to finance the property...which can keep certain cities or certain neighborhoods in rough shape for a longer period of time.



I see discrimintation in the states a lot more. Banks simply won't finance properties in certain neighborhoods leaving them to stay as a ghetto...essentially everyone living there has no choice but to live there because people who actually would choose to live tehre can't get financing so they go into another area of the city.