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Mortgage Buyback Largely Unsubscribed

CMHC-Mortgage-BuybackCMHC offered to buy $7 billion of 5-year variable-rate mortgages from lenders on Friday.

Lenders, however, wouldn’t sell them more than $2.3 billion worth.

Scotia Capital’s Roger Quick says this spells hope.  He told Bloomberg that it’s “a sign that bank financing conditions may be improving.” 

He may be right because Friday’s CMHC buyback was surprisingly undersubscribed. That means banks didn’t need to rely as much on government liquidity to sell their mortgages, and/or they didn’t have as many to sell.  By comparison, just four weeks ago CMHC was able to attract $8 billion of interest for the same type of mortgages.

Lenders got rid of their mortgages Friday at a cost that equates to 1.71% interest, or 0.76% above the CDOR rate. (CDOR is the benchmark rate for bankers' acceptances)  This 1.71% is a very rough snapshot of the cost of funds for the lenders who chose to sell those mortgages to CMHC.  In the previous variable-rate mortgage buyback, lenders had to pay 1.13% above CDOR—or 0.37% more than last Friday.

Generally speaking, falling premiums like this imply that the cost of variable mortgage funds is improving.


Government mortgage buybacks began in October 2008. They were meant to supplement lenders’ ability to raise capital in the face of Canada's historic credit crisis.