There is a misnomer in the industry that the Canada Mortgage and Housing Corp. (CMHC) can’t turnaround a loan application in reasonable time. This, however, is not the case. Staff can do so provided it has the appropriate information.

CMHC publishes a reference guide, CMHC Mortgage Loan Insurance for Multi-Unit Projects, which provides details on its products and policies related to multi-unit projects. At the back of the booklet there is a checklist of the minimum documentation required. This information must be up-to-date, accurate and complete. Often it’s not and this is why the process takes longer.

The underwriting process focuses on three areas (whether the loan is financed with CMHC mortgage loan insurance or not). What follows are examples of the information needed for each area of analysis for existing projects.

Housing market
The main considerations are the vacancy history of the market and sub-market areas, and the project under examination. At a minimum, the borrower should provide a three-year vacancy history of the project and show how it compares with the market and sub-market areas. Make sure the rationale behind the recommended vacancy rate is supported by facts. To aid the assessment, refer to the Rental Market Survey published by CMHC every spring and fall.

Borrower and guarantor capacity
Two things are examined in analyzing the borrower: competence and capacity.

For competence, the underwriter will assess track record, management ability and relevance to past experience. The borrower should provide a one-page document that describes its track record, property management process and ability. A clear, concise and factual description will make the work of the underwriter much easier.

For capacity, the underwriter will review financial and net worth statements. The borrower should provide its most recent fiscal year financial statement (preferably prepared by a public accountant on a review engagement basis), an income statement with an explanation of components that appear out of the ordinary, an up-to-date credit report and sufficient information for the underwriter to assess profitability, liquidity and equity. Proffering numbers is not enough; detail is required. For instance, the borrower should illustrate how it arrived at the market values of the income producing assets. Remember, the underwriter has to be satisfied the equity in the company is solid and durable.

Security
This is probably the most important component. CMHC’s valuation of the property will determine the maximum loan amount. CMHC generally uses the income approach to arrive at a value and then it reconciles it with comparable recent sales in the market area to determine an acceptable lending value. Because of this, it is very important to provide relevant, up-to-date information about the property.

Supporting documentation should include:

• A current rent roll with details of unit type, unit rents, parking charges (among others) and rent-effective dates. Clearly identify vacant units and explain anomalies.
• A current income and expense statement for a 12-month period with at least one previous year for comparison. Show the gross income potential, vacancy, bad debt and effective gross income separately. For expenses, explain unusual amounts and rationalize any adjustments or normalizations made. For example, if new boilers were recently installed and substantial utility cost-savings are expected, show the calculations to support the reduction. If there are expenses not related to the property, identify them and provide an explanation.
• A list of recent and planned improvements to the property.
• Copies of the most recent property tax, property insurance and utility bills. Organize by type and month, and then provide a total. Include details of superintendent costs and other wages and benefits costs.
• Information regarding whether the property is self-managed or managed by a third party. If managed by a third party, provide a copy of the agreement. If self-managed, describe the internal charge.

Vito Campisi recently joined MCAP Financial Corp. as vice-president of commercial lending in Toronto, after a long career with CMHC. He is responsible for originating mortgage financing, with an emphasis on CMHC insured products, for multi-residential, nursing homes, retirement homes, assisted housing and student housing. Vito can be reached at 416.591.2888 or [email protected].