Canada Mortgage and Housing Corporation Supports Canadian Credit Markets



    OTTAWA, Oct. 10 /CNW Telbec/ - Canada Mortgage and Housing Corporation
(CMHC) will purchase up to $25 billion in insured mortgage pools as part of
the Government of Canada's plan, announced today, to maintain the availability
of longer-term credit in Canada.
    The first purchase of $5 billion will be made October 16, 2008 through a
competitive auction process. The mortgages involved are high-quality assets
that are already guaranteed through government-backed mortgage insurance. The
Government will announce a schedule of future purchase dates to take place
over the coming weeks.

    Canada Mortgage and Housing Corporation (CMHC) has been Canada's national
housing agency for more than 60 years. CMHC is committed to helping Canadians
access a wide choice of quality, affordable homes, while making vibrant,
healthy communities and cities a reality across the country.

    Please refer to the attached backgrounder for details on the competitive
auction process.


    
    Standard Terms for NHA MBS Auction Operation

    1.  The purchase of NHA MBS by CMHC from issuers under the NHA MBS
        program (Issuers) will be conducted through a reverse auction process
        through which Issuers will indicate to CMHC the yield which they are
        willing to pay CMHC (on an annual basis over the term, remitted in
        twelve equal monthly installments per year).
    2.  All Auction Offers for the reverse auctions will be subject to these
        Standard Terms for NHA MBS Auction Operation.
    3.  Only those parties who are Issuers that have identified a swap
        counterparty in a CMHC Auction Offer form that has entered into an
        ISDA agreement with CMHC may participate. Swap counterparties must
        comply with the Standard Terms for NHA MBS Auction Operation Swap
        Transactions.
    4.  NHA MBS Auction Operation Call for Auction Offers, containing the
        details of each individual auction, will be available on CMHC's
        website (www.cmhc.ca) 1 day in advance of the operation.
    5.  Each Auction Offer submitted by an Issuer shall be unconditional and
        shall be received by CMHC no later than the time on the auction date
        specified in the NHA MBS Auction Operation Call for Auction Offers.
    6.  Each Auction Offer shall have a monthly yield no lower than the
        minimum yield inserted into the NHA MBS Auction Operation Call for
        Auction Offers at 9:40 am (Ottawa time) on the day of the auction
        operation.
    7.  The deadline for receiving Auction Offers is 10:00 am (Ottawa time)
        on the auction date. No offer received after this deadline will be
        considered. The minimum acceptable yield will be at a level above the
        yield on Canada Mortgage Bonds of like term.
    8.  Issuers will specify in the Auction Offers the amount on which they
        are willing to pay the indicated yield and will have sufficient
        NHA MBS to sell for that purpose.
    9.  All NHA MBS pool types will be eligible for the auction operations
        and must mature and settle before the stated maturity date set out in
        the NHA MBS Auction Operation Call for Auction Offers.
    10. Proceeds from NHA MBS that mature prior to the maturity of the
        purchase will be required to be reinvested in eligible assets by the
        swap counterparty for the remaining term of the purchase as
        identified in the Standard Terms for NHA MBS Auction Operation Swap
        Transactions.
    11. Yields will be rounded to three decimal places.
    12. The Issuers must enter into a Master Transfer Agreement..
    13. Issuers must submit the Auction Offers via e-mail using the address
        specified in the NHA MBS Auction Operation Call of Auction Offers.
        Issuers must contact CMHC by phone at 613-748-1450 to confirm receipt
        of the Auction Offer. The Auction Offers will be opened and
        considered at 10:00 am (Ottawa time).
    14. Submitted Auction Offers may be modified, cancelled, or replaced by
        composing and submitting a new Auction Offer referencing the previous
        Auction Offer via e-mail, to be followed by a phone call confirming
        receipt up to the time of the auction deadline.
    15. CMHC shall not be required to accept any offer, nor bears any
        liability whatsoever in that regard and for any errors in the Auction
        Offers received or for delays in the transmission of the Auction
        Offers.
    16. The total amount of the Auction Offers by an Issuer may not exceed
        25% of the maximum total amount specified in the NHA MBS Auction
        Operation Call for Auction Offers. Issuers may submit up to three
        Auction Offers for various amounts that do not exceed in aggregate
        this maximum.
    17. Auction Offers must have a minimum value of $20 million.
    18. CMHC reserves the right to accept or reject any or all Auction
        Offers, in whole or in part, including without limitation, the right
        to accept less than the total amount specified in the NHA MBS Auction
        Operation Call for Auction Offers.
    19. All NHA MBS delivered pursuant to offers from Issuers must be
        submitted free and clear of all liens, charges, claims, encumbrances,
        security interest, or other restrictions of any kind and an Issuer,
        in delivering the NHA MBS, is deemed to so warrant and represent.
    20. Winning Auction Offers will be determined by allocating funds to the
        highest yield for that Auction Offer amount and each subsequent
        highest yield for that Auction Offer amount until the total amount
        specified in the NHA MBS Auction Operation Call for Auction Offers
        has been fully allocated.
    21. Where there are multiple Auction Offers at the lowest accepted yield,
        these will be pro-rated and rounded down to the nearest $1 million.
    22. The settlement amount that will be paid for the purchased NHA MBS
        will be no less than 95% of the principal amount of the NHA MBS. The
        price for all of the NHA MBS shall be no more than 101% of the
        principal amount of the NHA MBS.
    23. Settlement will take place 5 business days following the date of the
        reverse auction.
    24. Settlement will be effected by CMHC and the NHA MBS will be
        registered in CMHC's name.
    25. Issuers' Auction Offers will be treated as confidential. A summary of
        the auction results will be made available on CMHC's website on the
        day of the auction without identifying the Issuers.
    26. No fees or commissions will be paid by CMHC to the Issuers or swap
        counterparties in connection with the purchases.

       Standard Terms for NHA MBS Auction Operation Swap Transactions

    1.  Swap counterparties providing the swaps in connections with each
        Auction Offers by an NHA approved issuers (Issuers) in the reverse
        auctions will be subject to these Standard Terms for NHA MBS Auction
        Operation Swap Transactions.
    2.  Eligible swap counterparties include all approved swap counterparties
        that have entered into an ISDA agreement (including the required
        schedules and CSA and agree to the signed form of confirm) for such
        transactions.
    3.  The swap will be transacted at the time the accepted NHA MBS Auction
        Offer is transacted..
    4.  Through the swap CMHC will pay to the swap counterparty all actual
        interest received on the NHA MBS plus all interest earned from
        reinvestment of principal from the NHA MBS, adjusted for the
        realization of any premiums or discounts, less administration costs
        of 5 basis points (per annum collected in monthly installments). The
        amortization of any premium or discount related to the NHA MBS or
        replacement assets will be included in the swap payments.
    5.  CMHC will receive from the swap counterparty an amount equal to the
        amount of the monthly yield owed to CMHC, as specified in the swap
        confirm.
    6.  Principal payments and prepayments received on the NHA MBS will be
        reinvested by the swap counterparty on behalf of CMHC. Reinvestment
        assets will be held in a CDS trust account established for each swap
        counterparty in CMHC's name under a reinvestment custodian agreement
        with CMHC.
    7.  Eligible reinvestment assets are: guaranteed NHA MBS, Government of
        Canada securities, Canada Mortgage Bonds with a remaining term of no
        more than 3.5 years, and repos of those assets.
    8.  Swap counterparties must have a minimum of two long term credit
        ratings of A- (S&P) or equivalent, one of which must be from S&P or
        Moodys.
    9.  Swaps will be marked-to-market semi-monthly. Threshold limits beyond
        which collateral must be posted by the swap counterparty under the
        ISDA agreements are set out below:

    -------------------------------------------------------------------------
                        Swap Dollar Threshold Amounts
    -------------------------------------------------------------------------
               Credit Rating         Counterparty Threshold (millions)
    -------------------------------------------------------------------------
                    AAA                            $250
    -------------------------------------------------------------------------
                     AA+                           $200
    -------------------------------------------------------------------------
                     AA                            $150
    -------------------------------------------------------------------------
                     AA-                           $100
    -------------------------------------------------------------------------
                      A+                            $75
    -------------------------------------------------------------------------
                      A                             $35
    -------------------------------------------------------------------------
                      A-                            $15
    -------------------------------------------------------------------------

    10. To enter into Repo transactions with CMHC, a repo counterparty must
        execute a Global Master Repurchase Agreement with CMHC and a
        confirmation for each transaction. CMHC will impose limits on the
        amount of repo transactions it will enter into with each counterparty
        based on a consolidated limit (i.e., across all CMHC repo business,
        including these transactions). Threshold limits beyond which
        collateral must be posted by the repo counterparty are set out below:

    -------------------------------------------------------------------------
        Threshold        Moody's            S&P                DBRS
    Amount (millions)     LT/ST            LT/ST              LT/ST
    -------------------------------------------------------------------------
          $3.0           Aaa/P-1          AAA/A-1+         AAA/R-1(high)
    -------------------------------------------------------------------------
          $2.0       Aa1 to Aa3/P-1    AA+ to AA-/A-1+     AA(high) to
                                                         AA(low)/R-1(mid)
    -------------------------------------------------------------------------
          $1.5        A1 to A3/P-1      A+ to A-/A-1+       A(high) to
                                           or A-1         A(low)/R-1(mid)
                                                            or R-1(low)
    -------------------------------------------------------------------------
          $0.3        Below A3/P-1      Below A-/A-1        Below A(low)
                      or Not Rated      or Not Rated         /R-1(low)
                                                            or Not Rated
    -------------------------------------------------------------------------

    11. Assets eligible for repo:

    (a) Obligations issued by the Government of Canada with a maximum term of
        10 years are permitted for repo. The repo of Government of Canada
        securities can have a maximum term of 1 month. Any coupon payments on
        the underlying Government of Canada securities occurring during the
        term of the repo will flow back to the repo counterparty. Daily
        ongoing margin maintenance will be required for repo of Government of
        Canada securities. Additional Government of Canada securities will be
        required on a net exposure (mark-to-market) basis and according to
        minimum exposure thresholds
    (b) Only obligations issued by the Canada Housing Trust (CHT) with a
        maximum remaining term of 3.5 years are permitted for repo. The repo
        of CMB can have a maximum term of 1 month. Any coupon payments on the
        underlying CMB occurring during the term of the repo will flow back
        to the Approved Repo Counterparty. Daily ongoing margin maintenance
        will be required for repo of CMB. Additional CMB securities will be
        required on a net exposure (mark-to-market) basis and according to
        minimum exposure thresholds
    (c) Only fixed-rate NHA MBS (pool typed 970 and 975) and floating rate
        NHA MBS (pool typed 980 and 985) may be used for repo. The repo of
        NHA MBS can have a maximum term of approximately 1 month, but no
        later than the next payment date. The NHA MBS principal and coupon
        payment dates may not fall within the term of the repo. Daily ongoing
        margin maintenance is not required for repo of NHA MBS; instead, it
        will be semi-monthly. Also, an upfront haircut will be applied to the
        price of the NHA MBS to provide upfront margin against potential
        price movement during the term of the repo. The amount of haircut to
        be applied will be based upon two factors: a) whether the NHA MBS
        bears a fixed or variable coupon rate and b) the remaining term of
        the NHA MBS, as indicated in the following table:

    -------------------------------------------------------------------------
                    Haircuts on NHA MBS Repo Transactions
    -------------------------------------------------------------------------
    NHA MBS        Remaining Term of   Remaining Term of   Remaining Term of
    Pool Type       Less than 1 Year      1 to 3 Years        3 to 5 Years
    -------------------------------------------------------------------------
    Fixed Rate
    (970, 975)            1.5%                 2.0%               2.5%
    -------------------------------------------------------------------------
    Floating Rate
    (980, 985)           0.25%                0.25%              0.25%
    -------------------------------------------------------------------------
    




For further information:

For further information: Stephanie Rubec, CMHC Media Relations, (613)
748-2300, ext. 3064, srubec@cmhc-schl.gc.ca; Julie Girard, CMHC Media
Relations, (613) 748-4684, Jagirard@cmhc-schl-gc.ca; Visit CMHC's website at
www.cmhc.ca


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