April 17, 2017 / 11:29 PM / in 5 months

BMO bundles uninsured Canada mortgages into securities: Moody's

The logo of the Bank of Montreal (BMO) is seen on their flagship location on Bay Street in Toronto, Ontario, Canada March 16, 2017. Picture taken March 16, 2017. REUTERS/Chris Helgren

(In April 17 story, corrects to “Aaa” from “Aaaa” in paragraph 3 and analyst’s name to “Hunt” from “Hunter” in paragraph 7)

(Reuters) - Bank of Montreal is bundling nearly C$2 billion ($1.50 billion) of prime Canadian mortgages into securities, said Moody’s in a pre-sale report on Monday.

The bond is backed by C$1.96 billion of uninsured prime residential mortgages, more than half of which are in Ontario and Quebec, added Moody’s. BMO did not respond to requests for comment.

About 95 percent of the securities will be rated “Aaa”.

BMO will offer to renew or refinance the mortgage loans at the end of their term if the borrower is in compliance with BMO’s underwriting criteria at that time.

Upon renewal or refinance of the mortgage loan, BMO will purchase the mortgage loan from the trust, Moody’s said.

“Canada’s one of the few jurisdictions that doesn’t have a developed RMBS market, this could be the first step to getting that going on,” Richard Hunt, an analyst at Moody’s Investors Service who rated the deal, told Reuters.

“This could be a template for future deals” Hunt added.

Canada’s housing market has been robust in the years since the global financial crisis, supported by low interest rates that have seen consumers take on more debt.

But last year’s changes by the federal government to tighten mortgage lending rules are expected to mitigate some of the run-up in housing seen recently in areas like Toronto and Vancouver.

Reporting by John Benny in Bengaluru; Editing by Cynthia Osterman

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