New Canadian Mortgage Rules May Improve ABCP Market

On Monday, October 17th, new rules will go into effect aimed at slowing growth in the Canadian housing market and reducing the Canadian government’s exposure to it. Following the implementation of these rules, many mortgages will no longer qualify for government insurance made available through the Canada Mortgage & Housing Corp. This development has led some to suggest that Canadian mortgage lenders may soon be turning to asset-backed commercial paper (ABCP) to fund lending businesses.

According to an article in Bloomberg, Richard Hunt, structured finance analyst at Moody’s Investors Service, believes it’s possible the new rules might spur growth in the C$15 billion ($11 billion) Canadian ABCP market. Hunt explains, commenting “it’s possible that (lenders) now leave (mortgages) as uninsured loans and fund them through asset-backed commercial paper.” That being said, both Hunt and Aubrey Basdeo, head of Canadian fixed income at BlackRock Inc., suggested that regulators would likely react negatively to any significant growth in issuance of ABCP backed by mortgages.

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