OTTAWA, ONTARIO--(Marketwired - Dec. 11, 2015) - Canada Mortgage and Housing Corporation is announcing a change to the guarantee fees it charges issuers as well as the annual limits for new guarantees for 2016 for both National Housing Act Mortgage-Backed Securities (NHA MBS) and Canada Mortgage Bonds (CMB).
"Guarantee fees and annual issuance limits allow CMHC to facilitate the supply of reliable mortgage funding in Canada while managing the Government's exposure to the housing sector" stated Wojo Zielonka, Senior Vice-President, Capital Markets. "The revised fee structure is intended to encourage the development of private market funding alternatives by narrowing the funding cost difference between government sponsored and private market funding sources."
CMHC guarantees the timely payment of interest and principal for NHA MBS and for CMB enabling approved financial institutions to pool eligible mortgages and transform them into marketable securities that can be sold to investors. These programs support financial stability by providing reliable mortgage funding at reasonable cost throughout the business cycle while fostering competition by supporting access to smaller lenders that cannot readily access other forms of funding.
Guarantee Fees
CMHC charges issuers a fee to compensate for the guarantee it provides. For the period ending June 30, 2016, guarantee fees under the NHA MBS and CMB programs will be kept at current levels.
Effective July 1, 2016, guarantee fees under the NHA MBS and CMB programs will be adjusted from current levels according to the following:
The increase in the threshold reflects that all NHA MBS sold into CMB issued after July 1, 2016 will be subject to NHA MBS guarantee fees. The threshold accommodates a reasonable use of NHA MBS for funding. The higher guarantee fee for issuances beyond the threshold is designed to discourage excessive use of NHA MBS for liquidity or funding purposes.
Effective July 1, 2016, the guarantee fee for CMB will be restructured and will account for the fact that guaranteed NHA MBS will be sold into CMB. CMHC does not expect the change in fee structure to impact the timing and volume of its CMB issuances.
For 2016, the following guarantee fees will apply:
5-year NHA MBS | 30 bps | 30 bps |
(annual guarantees <= $6.0B) | (annual guarantees <= $7.5B) | |
5-year NHA MBS | 60 bps | 80 bps |
(annual guarantees > $6.0B) | (annual guarantees > $7.5B) | |
5-year CMB | 40 bps | 30 bps + market NHA MBS fee |
*bps = basis point; 1 bps = 0.01% |
Guarantee Limits for 2016
Under the National Housing Act, the Minister of Finance has the authority to specify the terms and conditions under which CMHC may guarantee payment of any or all of the principal and interest, in respect of securities issued on the basis of housing loans. For 2016, the Minister of Finance has authorized CMHC to provide up to $105 billion (2015 - $80 billion) for new guarantees of market NHA MBS and up to $40 billion (2015 - $40 billion) of new guarantees for CMB.
The increase in the annual guarantee limit for NHA MBS is to accommodate the use of guaranteed NHA MBS used for CMB starting July 1, 2016. This limit excludes NHA MBS issuance as original or reinvestment assets for CMB series issued on or before June 30, 2016. These limits are separate and distinct from the $600 billion limit on mortgage insurance-in-force.
As Canada's authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need and offers objective housing research and information to Canadian governments, consumers and the housing industry.
For more information, visit our website at www.cmhc.ca or follow us on Twitter, YouTube, LinkedIn and Facebook.
Backgrounder
National Housing Act Mortgage-Backed Securities (NHA MBS)
Canada Mortgage Bonds (CMB)
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