COVID-19: Canada’s Response to Support Continued Lending

Authors: Mark Gill, Nathan Cramer

The Government of Canada has taken steps to address concerns regarding both the Canadian housing market and Canadian banking institutions’ ability to lend during the COVID-19 crisis in its overall financial relief initiatives.

Over the past few weeks, the Government announced that it will be expanding its Insured Mortgage Purchase Program (“IMPP”) administered by the Canada Mortgage and Housing Corporation (“CMHC”), a Crown corporation. This program serves to provide stability to banks and mortgage lenders during the COVID-19 crisis and thus facilitate their continued lending to businesses and individuals. Often, mortgage lenders will bundle the mortgages they have lent to sell to investors in order to raise funds for further lending. Under the IMPP, CMHC will purchase insured mortgages as National Housing Act Mortgage-Backed Securities (“NHA MBS”).

Originally reported on March 16, 2020, the CMHC announced that it will launch the IMPP, whereby the Government will purchase up to $50 billion of insured mortgage pools through the CMHC. On March 26, 2020, the CMHC announced that it will be increasing the Government’s purchasing ability from $50 billion to $150 billion. This allows for liquidity to be directed to banks and lenders, as upon the purchase of NHA MBS, the banks and lenders receive cash that can be used for lending purposes. Ensuring that lenders have liquidity is important during a time when many Canadians are opting to defer their mortgages.

While the $150 billion is a large increase from the $69 billion worth of mortgages that the CMHC purchased during the 2008 financial crisis, the CMHC advised that this carries no additional risk to the taxpaying public. Insured mortgage pools in Canada are already backed by the Government, and that the rate of return is above the Government’s cost of borrowing.

The Government also announced that it has expanded the eligibility requirements for accessing portfolio insurance, in an effort to help additional mortgage lenders access the IMPP. The Government explained that certain low loan-to-value mortgages funded prior to March 20, 2020 are eligible for Government-guaranteed insurance, including those that have a maximum amortization term of up to 30 years commencing from when the loan was funded and those whose purpose includes the purchase of property, subsequent renewal of such a loan or refinancing. The relaxed criteria will remain in force until December 31, 2020, upon which, eligibility will revert back to its previous criteria. Such amendments will allow lenders to pool previously uninsured mortgages into NHA MBSs for CMHC’s purchase through IMPP.

In a separate proactive initiative, the Bank of Canada recently announced that it will purchase Canada Mortgage Bonds (“CMBs”) in the secondary market through a competitive tender process. The Bank aims to spend approximately $500 million per week on CMBs, for as long as required by the current market conditions. This further alleviates the debt that current banks and lenders face, by providing them with more cash.

These combined efforts serve to facilitate the purchase of mortgage-related securities to provide banks and lenders with more liquidity to continue lending during these times of national financial hardship.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.