Breaking news: The Canadian government will prohibit the use of insured collateral, including mortgages insured by Canada Mortgage & Housing Corporation (CMHC), in covered bonds issued by financial institutions under legislation included in a bill being released by the Department of Finance.

The proposed Act, which would implement measures included in last month’s Federal budget, establishes CMHC (the Corporation) as registrar of covered bond programmes.

A draft of the Act seen by The Covered Bond Report says that the following loans must not be held as covered bond collateral:

(a) a loan made on the security of residential property if the loan is insured by the Corporation;

(b) a loan made on the security of residential property if the loan is insured by the Canada Guaranty Mortgage Insurance Company, the Genworth Financial Mortgage Insurance Company Canada, the PMI Mortgage Insurance Company Canada or any successor to any of those companies; and

(c) a loan made on the security of residential property if the amount of the loan, together with the amount then outstanding of any mortgage or hypothecary loan having an equal or prior claim against the property, exceeds 80 per cent of the value of the property at the time of the loan.

Read The Covered Bond Report tomorrow for more. Click here for our breaking coverage of the issue in January and here for our Canada country page for more on this issue.