Latest Videos

{{ currentStream.Name }}

Related Video

Continuous Play:
ON OFF

The information you requested is not available at this time, please check back again soon.

More Video

Feb 13, 2020

TD markets first RMBS from a top-six Canadian bank

David Burrows discusses TD Bank

VIDEO SIGN OUT

Security Not Found

The stock symbol {{StockChart.Ric}} does not exist

See Full Stock Page »

A unit of Toronto-Dominion Bank is moving ahead with what would be the first widely-marketed Canadian private-label residential mortgage-backed securities deal from one of the country’s six largest banks, according DBRS Morningstar.

The transaction will be backed by a $688.3 million pool of home loans that were originated by three smaller lenders, according to a DBRS Morningstar document. TD Securities plans to offer $450 million of top-rated securities with an expected maturity around Feb. 2023, according to people familiar with the matter who asked not to be named. It will be a milestone in creating a market to help disperse housing debt risk.

The last RMBS deal widely marketed in Canadian dollars was conducted by a Home Capital subsidiary in September, when it issued $425 million of securities that pooled near-prime and alternative-A mortgages. The weighted-average borrower credit score of that deal was 741, while that of TD’s Prime Structured Mortgage Trust will be 793, according DBRS Morningstar, which rated both deals.

“The mortgage pool compares favorably with recent issuances seen in the Canadian market in terms of credit-score characteristics,” rating company analysts including Tim O’Neil wrote in the Feb. 11 report.

A nationwide roadshow is taking place this week before the deal books are opened, so definitive terms still have to be set, people familiar with the matter said. The deal will be the first RMBS in Canada to aggregate mortgages originated by other lenders, mimicking a technique used in the securitization of mortgages guaranteed by the federal agency known as Canada Mortgage and Housing Corp, DBRS Morningstar said in an email to Bloomberg News.

The volume of residential mortgages in Canada increased 5.1 per cent in the twelve months through Nov. 30, according to data compiled by the Office of the Superintendent of Financial Institutions, or OSFI. That’s more than three times the country’s GDP growth in 2019. Uninsured mortgages grew 12 per cent to $759.4 billion. In contrast, insured loans declined 4.6 per cent to $469.5 billion over the same period, as the Federal government has sought in recent years to limit taxpayer exposure to the real estate sector.

Lenders create mortgage-backed notes by packaging property loans into securities of varying risk and expected return, and there’s been little evidence that risky mortgages have become a prominent feature in Canada’s RMBS market. In addition, mortgages are “full recourse” in most of the country, meaning lenders can pursue borrowers even after they’ve walked away from the property.

With a securitization deal the seller of the underlying assets can reduce the regulatory capital needed to be set aside to cover potential losses should they meet certain conditions, which includes transferring significant credit risk to third parties. The seller would need to hold capital for any securitization tranches retained.

TD Securities will offer only the safest portion of the transaction, specifically the bullet-pay class A notes, retaining the mezzanine and junior pieces, a person familiar with the matter said. Back in 2017, Bank of Montreal created a $1.96-billion RMBS deal, though much of the securities were purchased and retained by the bank itself, Moody’s Investors Service said at that time.

The Canadian Fixed-Income Forum, a Bank of Canada-led group made up of bond-market professionals, has been working for around two years to expand interest in RMBS. Part of their efforts include a proposed public mortgage database, the details of which would be ironed out by a working group co-chaired by the central bank, the CMHC, representatives from the six largest banks and the Canadian Bankers Association on behalf of the smaller players, according to a presentation given in October.