2020 Economic Outlook

Structural backdrop to the Canadian and U.S. housing market Regulation - - Canada (1) Government influences mortgage underwriting policies primarily through control of insurance eligibility rules Fully insured if loan-to-value (LTV) is over 80% Must meet 5-year fixed rate mortgage standards Government-backed, on homes under $1MM Down-payment over 20% on non-owner occupied properties CMHC last increased mortgage loan insurance premiums in 2017 by ~15% for new mortgages with LTV over 90% Minimum down payment for new government-backed insured mortgages is 10% for portion of the value of a home being purchased that is between $500,000 - $999,000, and 5% below $500,000 Re-financing cap of 80% on non-insured U.S.(1) Agency insured only if conforming and LTV under 80% No regulatory LTV limit - can be over 100% Not government-backed if private insurer defaults Consumer Mortgage interest not tax deductible Behaviour ■ Greater incentive to pay off mortgage Lender Behaviour ☐ Strong underwriting discipline; extensive documentation ☐ Lenders' Recourse Most mortgages are held on balance sheet ■ Conservative lending policies have historically led to low delinquency rates Ability to foreclose on non-performing mortgages, with no stay periods Full recourse against borrowers (2) ☐ Mortgage interest is tax deductible Less incentive to pay down mortgage Wide range of underwriting and documentation requirements Most mortgages securitized Stay period from 90 days to one year to foreclose on non-performing mortgages Limited recourse against borrowers in key states (1) Current regulation and lenders recourse. (2) Alberta and Saskatchewan have some limited restrictions on full recourse. 35 CANADIAN HOUSING MARKET RBC

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