Royal Bank of Canada is the latest Canadian firm to explore a sale of bonds backed by uninsured residential mortgages.
The bank is testing investor interest in a deal that would bundle mortgage loans to borrowers with credit ratings just below prime, known as "alt-A" mortgages, according to Tim Wilson, chief financial officer of Equitable Group Inc., one of the lenders which is originating the loans being bundled.
"Along with the banks, we're trying to understand what the investor appetite could be in terms of both volume and price," Wilson said by phone from Toronto. "Once we get a sense of that, we can make decisions about size, and even if the opportunity makes sense at all."
Canadian banks are eager to package uninsured home loans into bonds after the federal government last year made it harder for lenders to get government guarantees on mortgages. Bank of Montreal is planning a residential MBS to securitize C$2 billion ($1.5 billion) of prime uninsured mortgages. National Bank of Canada is exploring investor interest in a deal that would be backed by MCAP Corp. "alt-A" mortgages.
The RBC deal would be sponsored by Steel Curtain Capital Group and Ashley Park Financial Services. It may also include mortgage loans from Home Capital Group Inc., according to people familiar with the matter, who asked not to be identified because the deal is private.
Spokesmen for Toronto-based Royal Bank of Canada and Home Capital declined to comment. Representatives for Paradigm Quest Inc., a mortgage servicing company that is affiliated with Ashley Park, weren't immediately able to comment.
Steel Curtain Capital is exploring opportunities for creating a multilender residential mortgage securitization platform in Canada and is speaking to multiple lenders and third-party service providers, owner Frank Pallotta said by phone. He declined to comment on the deal being marketed by RBC.
The prospective offering comes as Ontario announced measures Thursday aimed at cooling Toronto's hot housing market, including a 15% tax that will apply to foreign buyers of residential properties containing one to six units in the greater Toronto area. Home prices in the city jumped a record 33% in March from the same month last year. Affordability in the city reached its worst level since 1990 at the end of 2016, according to a report from Royal Bank of Canada.
Subprime borrowers are generally considered to be homebuyers with FICO scores below 620 and mortgages with a loan-to-value ratio above 80%. The credit scoring scale from Fair Isaac Corp. ranges from 300 to 850.