Enhance financing that reduces mortgage financing costs for Canadian homebuyers
Canada Mortgage Bonds (CMBs) are debt securities fully backed by CMHC, that provide investors with a return that’s better than government bonds. CMBs are important to the Canadian housing market, because they provide vital liquidity to keep the housing market moving.
The amount of debt outstanding under the CMB program has increased by 20% over the last year (mid-August 2009) to $168 billion and attracted international investor support, which suggests continuing investor confidence in the Canadian residential real estate market.
Here’s how the process works:
1. Lenders originate mortgages
2. Lenders aggregate a group mortgages (also known as pools) for the purpose of selling them to investors
3. Lenders sell these pools as mortgage-backed securities (MBS) to the Canadian Housing Trust (CHT), a CMHC-run entity
4. The CHT sells Canada Mortgage Bonds (CMBs) to generate funds to buy the lenders’ mortgages
5. The CHT uses the MBS cash flows to make interest payments on these CMBs to investors.
6. The lenders take their proceeds and re-circulate them again as new mortgages
Because CMBs are fully guaranteed by the government, investors demand less interest on CMBs. That lowers the cost of funds for lenders and thereby lowers the cost of mortgage financing in Canada