CMHC 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.
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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.
Last modified: May 24, 2022
Encouraging news indeed and reflects the low number of defaults seen in Canada (approx. 0.3-0.4 %) up to now. If the US can stabilize the mortgage mess as well as their economy, Canada may just avert the worst of it. Keep up the great posts Rob.
Rob,
from this point on, what do you think rates will go up or down
It would be interesting to see how the lack of interest in the Fed’s buyback relates to stiffening of lenders policies and standards and the subsequent decline in loan volumes, both insured and uninsured.
Hi Ash: Rate forecasts are a statistical coin-flip so I won’t hazard a guess. Economists, however, expect another 0.25%-0.50% drop in prime March 3.
Fixed rates are anyone’s guess because bond yields aren’t as easily divined. If the BoC’s March 3 commentary is reassuring, bond yields (and fixed rates) may go up. If not, they may go down. That’s about all one can say at this point.
If you’re a technical analyst, however, 2.15% is a key short-term number on the 5-year government bond yield. A close above that will have some people thinking fixed rate increases.
Hi Don: I agree. Although the price of government money seems more expensive all of a sudden, so maybe that’s the primary factor?
Interesting to read about whats going on in Canada. I didn’t realize you guys were having a similar problem with your housing market and loans and all that jazz. Here I thought the US was one of the only countries having a rough patch with this type of thing.