When Smith Financial bought out Home Capital, it necessitated that Home lose its precious NHA mortgage-backed securities (MBS) and Canada Mortgage Bond (CMB) allocations—i.e., the ability to fund its mortgages through MBS and CMBs.
That was a crushing blow to Home's prime mortgage competitiveness. After all, the spread on CMB/MBS funding is just 25-50 bps more than the Government's risk-free borrowing rate. Lenders must add miscellaneous costs (guarantee fees, insurance premiums, etc.), but CMBs/MBS are still often the cheapest way to fund a mortgage.
Knowing this crucial lifeline would end, Home Capital chose to cut off its low-margin prime mortgage business like a gangrene-infected leg.
The loss of Home Trust as a prime mortgage competitor, in turn, led some to ask why this had to happen.
We turned to CMHC, the Yoda of securitization, for an explanation. It said...
Comments
Sign in or become a MortgageLogic.news member to read and leave comments.
Just enter your email below to get a log in link.