Mortgage-Backed Securities Available in Canada
According to a The Globe and Mail report, the Bank of Montreal is bundling nearly $2 billion of prime Canadian mortgages into securities.
The steep, continually rising housing prices in a couple major Canadian cities, Vancouver and Toronto, are the core factors for the move.
A July 2016 study on average home prices in major Canadian cities, by Living in Canada, revealed the average home prices in Vancouver and Toronto to be $1,008,000 and $710,000, respectively. Those prices represent a 16% and 17% increase from July 2015.
The bonds, which are not insured by the government, are backed by $1.96 billion of prime residential mortgages. Around 95% of the securities will be rated Aaa, while the lowest rated portion will be B2.
If this is conjuring up flashbacks to the housing crisis of 2008, or a movie starring Christian Bale as Michael Burry (The Big Short), there are analysts who view the move in a positive light.
‘’This is a really unique deal in the Canadian market,’’ Richard Hunt, an analyst at Moody’s Investors Service who rated the deal, said. ‘’Given the pent-up demand that we think is out there on the part of banks and non-banks to have a vehicle to fund their residential mortgages, to have an RMBS market, we think this could be a significant transaction.’’
Outside of the banking industry, other industries have also taken note of the move.
‘’Just as BMO has left insurance to the insurance professionals, we’re optimistic this move – by one of Canada’s largest banks – is in the best interest of Canadians, ‘’Matthew Alston, COO of Surex, said. ‘’It’s exciting to see Canadian banks pursue new and creative products.’’