Investor Relations - Fixed Income Presentation

Structural backdrop to the Canadian housing market RBC Regulation Canada (1) ■ Government influences mortgage underwriting policies through control of insurance eligibility rules ☐ ■ Fully insured if LTV is over 80% - - Must meet 5-year fixed rate mortgage standards Government-backed, on homes <$1 million Down-payment > 20% on non-owner occupied properties Re-financing cap of 80% on non-insured mortgages Consumer Mortgage interest not tax deductible Behaviour ■ Greater incentive to pay off mortgage Strong underwriting discipline; extensive documentation Lender Behaviour 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) 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 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 Investor Relations - Fixed Income Presentation (1) Current regulation and lenders recourse. (2) Alberta has some limited restrictions on full recourse. 5

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