Bank of Canada Governor Stephen Poloz wants to grow a market for private mortgage-backed securities in Canada, but demand for such investments, which still carry the stigma of the financial crisis, appears to be scarce.
“This is an increasingly important point because the market share for uninsured mortgages is increasing, and they can’t be used in CMBs ,” Poloz said in his speech, in which he made several suggestions for the future of the mortgage market. In Canada, however, only mortgages insured against default — where borrowers are typically making a down payment of less than 20 per cent — are allowed for government-sponsored MBS.
The government has also been pushing for a private MBS market for years, said Toronto mortgage broker and RateSpy.com founder Robert McLister. To that end, it imposed limits and greater costs on securitization and portfolio insurance , he said. A Bank of Canada spokesperson said in an email that Bank of Montreal had also issued an uninsured mortgage-backed security in April 2017, and that MCAP had done another deal in 2018 in addition to the one mentioned in the BoC paper, in September.
Banks can issue “covered” bonds to fund uninsured mortgages, but a federal regulator caps the percentage of those securities any one lender can have at four per cent of their total assets. Smaller financial institutions also lack “the same economies of scale as the big banks,” Poloz said, making such issuance difficult.
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