CMHC caps guarantees on mortgage-backed securities

CMHC caps guarantees on mortgage-backed securities

CMHC caps guarantees on mortgage-backed securities

The Canadian Housing and Mortgage Corp (CMHC) has issued a cap on guarantees of mortgage-backed securities (MBS) following a flood of product in the first seven months of the year, it said in a statement to issuers.

As of August, each issuer will be subject to a $350 million cap in the amount of MBSs that the agency will guarantee. The CMHC said the total issuance of MBS guaranteed under the National Housing Act (NHA) had reached $66 billion as at end July, compared to $76 billion for full year 2012.

“As a result of this unexpected increase in issuance volumes to date and to better manage volumes going forward, CMHC will be introducing a formal allocation process in late August,” said Wojciech Zielonka, CMHC vice-president capital markets.

CMHC set a limit on the total NHA MBS it would guarantee in 2013 at 85 billion.

By converting mortgage loans into securities, banks and other lenders are able to issue more mortgages at lower costs. The federal government has been seeking to reduce household debt and cool the housing market, including through tighter regulations and direct communications with banks.