More Opportunities for Borrowers: CMHC’s Financial Capacity Review Threshold Changes

Understanding the Changes

CMHC’s mortgage loan insurance programs foster stability, accessibility, and affordability within the Canadian commercial real estate financing market, benefiting borrowers and developers alike.

The Canadian Mortgage and Housing Corporation (CMHC) recently announced changes to its financial capacity review (FCR), increasing the threshold from $75M to $150M, effective March 31, 2023. This development brings two significant implications for commercial real estate developers and borrowers.

Key Implications

Accelerated Funding Process for all Borrowers

Clients under the $150M threshold will have their underwriting applications completed at the transaction level without requiring an FCR. This change significantly reduces delays, as FCRs used to take roughly two to three months. For clients still above the threshold, the FCR process is expected to be streamlined considerably as a significant number of FCRs are removed from the queue, leading to fewer delays and a smoother path from application to approved COI.

Adjusted Debt Service Coverage for Specific Assets

Generally, the minimum debt service coverage (DSC) for a borrowing group that requires an FCR has been 1.30x. However, files submitted through the Flex or Select Programs historically have a lower 1.10x DSC minimum. Based on this relatively wide gap, many clients have asked if a 1.30x DSC is required if there are projects that were completed through these programs.

An Example of an Adjusted DSC

We have confirmed that  loans through programs like MLI Select with lower DSC requirements will be reviewed at a 1.10x DSC, which will ultimately reduce the 1.30x DSC threshold on an FCR. By way of example, if a client had two projects, each with a $100M loan, with one financed through MLI Select, the DSC requirement for that client would end up being 1.20x during their review.

Borrowers and Canadian Communities: Overcoming Challenges

Commercial real estate borrowers today face several challenges, including bottlenecks in the funding pipeline and difficulties in meeting the 1.30x debt service coverage requirement. 

The recent changes to CMHC’s financial capacity review thresholds solve these challenges. By raising the FCR threshold and lowering DSC requirements as a result in some scenarios, borrowers can experience faster funding and more accessible approvals for assets with more positive social outcomes.

A Proven Track Record

Canada ICI continues to build on its resume of performance with over $7 Billion of transactions across the country in the past 12 months. Working with over 80 different funds, Canada ICI is a results-oriented organization currently one of the country’s top suppliers of CMHC debt across Canada ICI.