Scotiabank Canadian Legislative Covered Bonds Presentation
Housing Market Structural Differences vs. U.S.
Regulation
and taxation
Product
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Canada
Mortgage interest not tax deductible
Full recourse against borrowers in most provinces (in all of Saskatchewan
and for low-ratio mortgages in Alberta, recourse is only to the value of
property)
Ability to foreclose on non-performing mortgages with no stay periods
Mandatory default insurance for any mortgage with Loan-to-value >80%
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CMHC insurance backed by the government of Canada (AAA). Private
insurers are 90% government backed
Insurance available for homes up to $1 million
- Premium is payable upfront by the customer
Covers full amount for life of mortgage
Homebuyers must qualify for mortgage insurance at an interest rate that
is the greater of their contract mortgage rate or the Bank of Canada's
conventional five-year fixed posted rate
Re-financing cap of 80% on non-insured mortgages
Maximum 25-year amortization on mortgages with LTV > 80%
• Maximum 30-year amortization on conventional (LTV < 80%) mortgages
Down payment of > 20% required for non-owner occupied properties
.
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Underwriting
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Conservative product offerings, fixed or variable rate options
Much less reliance upon securitization and wholesale funding
Asset-backed securities not subjected to US-style off-balance sheet
leverage via special purpose vehicles
Terms usually 3 or 5 years, renewable at maturity
Extensive documentation and strong standards
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US
Tax-deductible mortgage interest
creates incentive to borrow and
delay repayment
• Lenders have limited recourse in
most states
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90 day to 1 year stay period to
foreclose on non-performing
mortgages
No regulatory LTV limit
.
Private insurers are not
government backed
Can include exotic products
(adjustable rate mortgages,
interest only)
30-year term most common
Wide range of documentation and
underwriting requirements
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