To squeeze further revenue out of their mortgage purchases, these institutions package them up and sell them to their customers as investments.
The mortgages that make up Canadian MBS are all insured, meaning that even in the event of a default, lenders will be paid back.
It was lenders going out of their way to originate as many mortgages as possible so they could bundle them and sell those bundles off to investors before the mortgages underpinning them inevitably turned sour.
You can purchase NHA MBS in $5,000 denominations from a select list of Canadian financial institutions — banks, insurance companies, trust companies and credit unions — with terms ranging up to ten years.
Each form of MBS investing provides an enticing amount of security, as the mortgages involved are fully guaranteed by CMHC.
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