Canada's CMHC to Cap Its Guarantees to Issuers of NHA MBS to C$350 Million for the Remainder of 2013

Date Published 8/6/2013
Author Marja Hoek Smit
Country Canada

Canada’s CMHC to Cap its Guarantees to Issuers of NHA MBS to C$350 million for the remainder of 2013

August 6, 2013

The Canada Mortgage and Housing Corporation announced that it would restrict guarantees it offers to banks and other lenders under its National Housing Act Mortgage-backed Securities (NHA-MBS) program to a maximum of C$350-milion per issuer for the remainder of the year.

This follows the announcement early this year by the Federal Finance Minister, Mr. Jim Flaherty, that CMHC would be limited to guarantee a maximum of C$85-billion worth of NHA MBS this year. By the end of July, lenders had already issued C$66-billion of the securities, hence the cap imposed by CMHC. CMHC guarantees timely payment of interest and principle to investors in NHA MBS at a fee. CMHC also controls approximately 75 percent of the country’s mortgage insurance market.

These restrictions are part of a series of moves to tighten control and oversight over CMHC and reduce taxpayer’s exposure to housing market losses by curbing CMHC’s growth (statutorily it cannot guarantee or insure more the C$600-billion in mortgage debt and it is close to that limit) and tightening its underwriting standards. CMHC was placed under a different regulator, the Office of the Superintendent of Financial Institutions (OFSI).

In a separate but related measure, the new legal framework for covered bonds that was put in place last year (see Hofinet: CMHC Announces Covered Bond Framework) stipulates that banks cannot use insured mortgages in the cover pools.

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