The Characteristics of Uninsured Mortgages and their Securitization Potential

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Following changes to housing finance policies that target insured mortgages, uninsured mortgage credit has been growing. This robust growth creates a larger pool of mortgages that may be suitable for private-label residential mortgage-backed securities (RMBS). The development and viability of the Canadian private-label RMBS market would depend on the characteristics of the underlying collateral. We address this data gap by documenting the key features of uninsured mortgages originated since 2014, comparing them across two groups of federally regulated financial institutions, i.e., domestic systemically important banks (DSIBs) and non-DSIBs. We find that on average, non-DSIB mortgages exhibit riskier characteristics, including lower credit scores, and higher debt-service and loan-to-income ratios. When compared with the prime quality collateral backing domestically issued RMBS to date, we estimate that the non-DSIBs’ securitization potential since 2014 has been about $17 billion. Growing that issuance further would require approaches to broaden the pool of acceptable mortgages.