Home Capital boosts Canada's private-label RMBS growth efforts

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A subsidiary of Canada’s Home Capital Group is sponsoring a C$491.4 million (US$370.8 million) securitization of domestic home mortgages, providing momentum in efforts to boost private-label RMBS offerings of mortgages originated by Canadian lenders.

DBRS Morningstar and Moody’s Investors Service have assigned preliminary ratings to the Classic RMBS Trust, Series 2020-1 transaction sponsored by Home Trust Co.

The deal will carry notes in Canadian currency. The capital stack includes the C$417.7 million Class A tranche notes with preliminary triple-A ratings, according to the ratings agency presale reports.

A Class B tranche totaling C$49.1 million is rated Aa3 by Moody’s and AA (low) by DBRS Morningstar. Neither agency is rating the C$24.56 million Class Z pass-through notes.

The notes are backed by 1,146 fixed-rate mortgage loans originated by a network of Home Trust-approved brokers. Home Trust will remain the servicer of the loans.

Moody’s expects cumulative net losses of 1% on the deal.

Earlier this month, a unit of Toronto-Dominion Bank launched what was first widely marketed Canadian private-label RMBS deal this year from one of the country’s six largest banks, according DBRS Morningstar.

The TD transaction is being backed by a C$688.3 million pool of home loans that were originated by three smaller lenders, according to the ratings agency. TD Securities plans to offer C$450 million of AAA-rated securities with an expected maturity around February 2023.

Home Trust’s senior notes have an expected March 2027 maturity.

The last RMBS deal widely marketed in Canadian dollars in 2019 was conducted by Home Trust in September, when it issued C$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 TD Bank deal was 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% 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% to C$759.4 billion. In contrast, insured loans declined 4.6% to C$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.

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.

(This article includes information from Bloomberg News)

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