Morningstar DBRS Confirms AAA Credit Rating of NHA Mortgage-Backed Securities

DBRS Limited (Morningstar DBRS) confirmed the platform credit rating of AAA on the NHA Mortgage-Backed Securities (the NHA MBS) issued under the NHA MBS Program.

The NHA MBS are issued by Canada Mortgage and Housing Corporation (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 His 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) credit rating of AAA, which mirrors Morningstar DBRS’ Government of Canada’s Long-Term Local Currency – Issuer Credit Rating of AAA. As an agent of His 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 credit rating is based solely on the CMHC Guarantee and CMHC’s current credit 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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies applicable to the credit rating are
-- Master Canadian Structured Finance Surveillance Methodology (June 7, 2023), https://dbrs.morningstar.com/research/415503
-- North American Structured Finance Flow-Through Ratings (November 13, 2023), https://dbrs.morningstar.com/research/423240

Other methodologies referenced in this transaction are listed at the end of this press release.

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 info-DBRS@morningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

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

This is an unsolicited credit rating.

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.