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Mortgage Market & MBS Nuggets

Bank of America Merrill Lynch put out a fantastic primer on mortgage-backed securities (MBS) last week. Here’s a small sampling of its notable factoids:


Securitization versus the U.S.

Risky mortgage securitization was blamed for feeding the U.S. housing crisis. In comparison, not only is Canadian MBS regulated far more rigidly than that toxic American MBS of old, but our overall securitization share of mortgage finance remains well below U.S. levels (although the gap is narrowing).

MBS Outstanding

There are $440 billion of outstanding NHA MBS in Canada, all fully guaranteed by our government. NHA MBS benefits from Canada being one of only 10 countries in the world with a triple-A credit rating (Australia, Denmark, Germany, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland are the others).

Distribution of MBS

The majority of NHA MBS are held in Canada Mortgage Bonds (CMBs), of which there are $215 billion outstanding. Big 6 Banks hold another $172 billion of MBS, leaving roughly $39 billion in the hands of secondary investors.

Canada’s Banks are Titans

Canada’s major banks hold almost twice as much mortgage market share as do U.S. banks.

Regulatory Impact on Credit

Check out how CMHC’s average borrower profile has improved over the past year and a half, thanks in large part to the Department of Finance’s stricter lending policies.


Canadian Versus U.S. Delinquencies

Total mortgage delinquencies in Canada have typically remained under 0.50%. Compare that to U.S. prime fixed-rate defaults, which soared to about 2.4% during the financial crisis. Over the past two decades, Canadian delinquencies have never surpassed 0.7%.

Canadian Versus U.S. Insurer Capitalization

CMHC’s insurance in force is $523 billion. Backing that is about $16 billion in capital, or 3%. By contrast, there’s “a congressionally mandated 2% capital target for the FHA in the US,” says BofAML, a capital level that must cover “an arguably weaker borrower credit profile.”

Our thanks to Bank of America Merrill Lynch for making this report available to CMT.