Covered Bond Program Overview

Canadian Mortgage Market Beneficial Mortgage Regulation in Canada Default Insurance • Under the Bank Act, banks can only advance uninsured mortgages up to an LTV ratio of 80% • Borrowers have to purchase default insurance if the mortgage has an LTV > 80% • . Insurance covers the entire outstanding principal amount, up to 12 months accrued interest and, subject to certain caps, any out-of-pocket costs incurred by the lender (e.g. foreclosure expenses, legal fees, maintenance costs, property insurance, etc.) • Mortgage default insurance is provided by CMHC and private mortgage insurers (Sagen, Canada Guaranty) Favourable Legal Environment CIBC◇ Taxation • In most provinces, lenders have robust legal recourse to recoup losses (e.g. garnishing wages) Mortgage interest is generally not tax deductible, which results in an incentive for mortgagors to limit their amount of mortgage debt This combination of factors results in consistently low credit losses on the Canadian banks' mortgage books 45

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