DBRS Morningstar Assigns AAA Rating to NHA Mortgage-Backed Securities

DBRS Limited (DBRS Morningstar) assigned a new platform rating of AAA to the NHA Mortgage-Backed Securities (the NHA MBS) issued under the NHA MBS Program. Concurrently with this rating action, DBRS Morningstar discontinued its rating on the NHA Mortgage-Backed Securities, LT (bsd on Gov’t Cda), which DBRS Morningstar maintained under the Canada Mortgage and Housing Corporation (CMHC).

The NHA MBS are issued by CMHC-approved issuers (the Issuers) participating in the NHA MBS Program. The NHA MBS are backed by residential mortgage loans insured against borrower default under the National Housing Act (NHA) by CMHC or by an approved private mortgage insurer and meet certain eligibility criteria. The NHA MBS are issued periodically, paying fixed- or floating-rate interest.

The Issuers are responsible for the servicing of the loans and depositing the amounts collected into a designated account from which the NHA MBS central payor and transfer agent then make payments to holders of the NHA MBS. The NHA MBS use a modified pass-through approach; that is, if borrowers fail to make payments on their loans that are at least equal to the monthly payment due to investors, the Issuer must cover the shortfall and deposit the necessary funds to make the monthly payments due to investors. Pursuant to the NHA, CMHC in its capacity as an agent of Her Majesty in Right of Canada guarantees (the CMHC Guarantee) the timely payment of principal and interest on each NHA MBS in default of the issuer fulfilling such obligation of timely payments to investors, in accordance with its terms. Consequently, NHA MBS are rated at the same level as CMHC’s All Debt Securities, Cdn Currency (bsd on Gov’t Cda) rating of AAA, which mirrors DBRS Morningstar’s Government of Canada’s Long-Term Local Currency rating of AAA. As an agent of Her Majesty in Right of Canada, CMHC’s debt obligations and guarantees are direct obligations of the Government of Canada.

The CMHC Guarantee will ensure timely payment to NHA MBS investors if the Issuer has deposited insufficient funds to meet the monthly payments due to investors. As a result, the Issuers have assigned all rights, title, and interest in the pooled loans to CMHC as trustee on behalf of investors.

The AAA rating is based solely on the CMHC Guarantee and CMHC’s current rating without any review of the underlying collateral.

CMHC keeps up-to-date information on NHA MBS activity, which can be found on https://www.cmhc-schl.gc.ca/en/professionals/project-funding-and-mortgage-financing/securitization/nha-mbs/securitization-reports.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
The principal methodologies are Master Canadian Structured Finance Surveillance Methodology (June 7, 2021), North American Structured Finance Flow-Through Ratings (January 4, 2021), and Global Methodology for Government Related Entities (March 8, 2021) which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577