Underwriting Documentation

Lenders are expected to exercise sound loan documentation practices as a condition of mortgage insurance coverage. In accordance with prudent underwriting practices and in compliance with Sagen policies, Lenders are responsible for retaining on file documentation and details to support new loans and changes to existing insured loans for the length of time that the mortgage insurance coverage is in place. In all cases it would be expected that Lenders would retain documentation that supports the transaction in question, borrower assessment, property assessment and any other applicable documents required to substantiate the loan application. For specific details, refer to the full Data Submission and Retention Schedule at www.sagen.ca – Lenders.

Documentation

Documentation outlined below should be included, if applicable, in the Lender’s internal application file:

  • Signed mortgage application and borrower consent.
  • Loan summary/information
  • Underwriting notes
  • Multiple listing service (“MLS”) listing and photos
  • Purchase and sale documentation
  • Income confirmation
  • Credit/liability documentation
  • Assets/down payment
  • Appraisal/final inspection report
  • Mortgage approval/commitment with solicitor conditions
  • Solicitor’s final reporting
  • Homeowners insurance binder or policy
  • Documentation related to Sagen product specific requirements and/or approval conditions.

Commitment to Insure

The commitment to insure will expire the earlier of either the indicated closing date plus 90 days, or as outlined below:

  • Commitments for new construction properties expire 36 months from the last approval date.
  • Commitments for existing resale properties expires 12 months from the last approval date.

These terms are also applicable if the mortgage advance date is not provided.

Certificate of Mortgage Insurance

  • Upon receipt of the premium, the commitment to insure converts to a Certificate of Mortgage Insurance as set out in the Master Policy.

Updates After Approval

Lenders may make changes and corrections to certain loan terms without submitting a new application or requiring prior approval from Sagen. Resubmission of a mortgage application is not required where the following changes have been made within the permitted variances:

Data Element Resubmission to Sagen is not required if:
Building Size

(Livable floor area above grade)

•  Changes do not exceed ± 5%
Lot Size •  Changes do not exceed ± 5%
Property Age •  Changes do not exceed ± 20%
 

 

 

Closing Date

•  Existing Homes – The updated closing date does not exceed the original submitted date by > 30 calendar days.

•  New Construction – The updated closing date does not exceed the original submitted date by > 60 calendar days This does not apply in cases where the completion has been delayed by the builder. In these cases, delays cannot exceed 36 months from the date of the last mortgage insurance commitment.

 

Contract Interest Rate

•  Decrease to the contract interest rate does not exceed one percentage point.
 

Gross Debt Service Ratio (“GDSR”) *

•  Changes not exceeding ± 5% to any one component used in the calculation of the GDSR where the impact to the ratio does not exceed two (2) percentage points; or

•  In all cases, the loan must be resubmitted if the resulting GDSR is > 35%.

 

Total Debt Service Ratio (“TDSR”) *

•  Changes not exceeding ± 5% to any one component used in the calculation of the TDSR where the impact to the ratio does not exceed two (2) percentage points; or

•  In all cases, the loan must be resubmitted if the resulting TDSR is > 42%.

Borrower employment history/ Duration with current employer/ Duration of service •  Change to the tenure is not greater than 2 years and current employment tenure of the borrower (even considering the change to tenure) is greater than 2 years.

*Additional guidance for calculating GDSR and TDSR can be found in Chapter 4 – Covenant Underwriting – Debt Servicing.

  • If changes exceed the indicated variance, or a change is not noted above, resubmission of the application for mortgage insurance is required.
  • An amended commitment to insure / Certificate of Mortgage Insurance will be issued upon approval of the resubmitted application.

Changes After Certification

Partial Release of Land

A release of any portion of the property will not require Sagen’s prior approval if the following conditions are met:

  • The Lender can confirm the existing loan has been paid as agreed and is currently up to date.
  • The land remaining as the security to the mortgage is fully serviced.
    • If service on the remaining land is required, any costs associated with obtaining the service is the borrower’s responsibility. The cost cannot be added to the outstanding balance of the mortgage.
  • The Lender has on file a survey showing the portion of the land being released as it relates to the land that will remain the security for the mortgage.
  • The marketability and present or future use of the remaining security is not adversely affected by the release, and any beneficial right-of-way or easements are removed.
  • All adjacent lands acquired as part of the transaction must be made subject to the mortgage; and,
  • The release does not result in an increase in the current loan-to-value (“LTV” ).
    • If the compensation the borrower receives is the lesser of 10% of the purchase price or less than or equal to $15,000, an increase to the LTV is permitted provided it does not exceed the LTV at origination.

If the above conditions cannot be met, the Lender should submit the application to Sagen for review and include the following documents:

  • A letter outlining the specifics of the release of land.
  • A survey showing the portion of the land to be released as it relates to the land that will remain the security for the mortgage; and
  • A copy of the Lender’s recent appraisal stating the value of the land released and the impact on the value of the remaining insured property.

Changes to the Occupancy of the Insured Property

Given the intended occupancy of a home is an essential part of evaluating the overall risk of a mortgage loan, Lender’s must remain diligent and not knowingly approve borrowers that may in tend to contradict Sagen’s product requirements. This includes the expected occupancy of a home. It is the Lender’s responsibility to verify the occupancy of a home reflects what has been presented in the application for mortgage insurance. In the event the occupancy of a home changes throughout the life of a mortgage loan, the mortgage insurance coverage will not be affected. Furthermore, the Lender is not required to inform Sagen of change in occupancy provided the use of the property remains residential.

Mortgage Assumption and Release of Covenant

The Lender is not required to notify Sagen of an assumption or release of covenant subject to:

  • The loan being in good standing; with no arrears in the last 12 months.
  • Terms and conditions of the mortgage remain unchanged.
  • All supporting documentation is retained in the Lender’s file to support the transaction; and
  • The new or remaining covenant(s) are of the same or higher quality to those originally insured by Sagen.

It is the Lender’s responsibility to ensure the new covenant qualifies as per their internal underwriting guidelines. Lenders will continue to have the option to submit the new covenantto Sagen for adjudication if this is part of their internal process.

Mortgage Insurance Prepay and Re-Advance Policy

Re-borrowing of prepaid funds is permitted for Sagen insured loans with no additional mortgage insurance premium subject to the following conditions:

  • In re-advancing the prepaid principal, the Lender and borrower should clearly understand this is not a default management tool. Borrowers may elect to re-borrow prepaid amounts and use the funds for any purpose they choose without consultation with the Lender, however, borrowers will not be able to access these funds if at the time of the request their mortgage is currently in arrears for the equivalent of more than one month of payments; or during the previous 3 months, the mortgage was in arrears for more than the equivalent of more than one month of payments. Property taxes in current year must be paid up to date.
  • The balance owing plus the requested re-borrowing must not exceed the balance of the loan, at that time, according to the original amortization schedule.
  • If a Sagen insured mortgage loan is assumed, prepayments made by the original borrower do not entitle the new borrower to borrow the prepaid funds.

Sagen defines the term “prepayment” as any optional payments (exclusive of interest savings or penalties) made by the borrower over and above the payments as set out in the original mortgage contract. This includes lump-sum payments, as well as accelerated payments.