It’s well understood that whether you rent or own, there’s a good chance someone is making mortgage payments on your home. What you may not know is that thanks to decades of government policy those monthly mortgage payments are likely to land in the pockets of oligarchs.

Consider the following scenario. In exchange for a small portion of the value of your home the bank issued a loan which allowed you (or your landlord) to take possession of a property. A sizable chunk of your monthly income now flows directly into the bank’s coffers to service that loan. From the bank’s perspective, this mortgage is up to snuff: they collect the interest month after month and, at current rates, they’ll take in around 180 percent of the value of the home over a 25-year amortization period—the most popular term among Canadians who renewed their mortgage in 2024.

But a quarter-century is a long time to realize profit. What if the value of a mortgage could be collected today? What if the bank could sell your debt on the open market? They could use the influx of cash to lend out even more money and collect even more interest on even more mortgages.

Thanks to the National Housing Act, they can do exactly that.

Lenders can take the debt owed on your house, bundle it together with other mortgage debt, and sell that bundled debt as a financial product. These debt-bundles are called National Housing Act Mortgage-Backed Securities (NHA MBS), and for the financial types they are a win-win. The banks who sell them get to improve liquidity (get more cash on hand) and the investors who buy them get to sit back and collect your rent/mortgage payments.

Because you generally pay your rent, and because your landlord generally uses your rent to make their mortgage payments, mortgage debt is considered to be a safe investment. This sense of investor safety is enhanced by the ‘hedged’ nature of these products—so many mortgages are bundled together (an NHA MBS can be worth over $1 billion) that a few missed payments won’t have much of an impact. A huge number of homeowners would have to stop paying their mortgages before these assets stopped generating dividends.

These securities are made in partnership with the Canada Mortgage and Housing Corporation (CMHC), a Crown corporation which plays a central role in administering our housing finance system. Among other things, it authorizes banks to bundle mortgages into financial products and backstops them on behalf of investors. The CMHC’s 2024 Mortgage-Backed Securities Guide explains that while responsibility for collecting monthly payments and distributing those payments to investors lies with the banks, NHA MBS are guaranteed by the Government of Canada through the CMHC. This means if anything goes wrong it is the legal responsibility of the feds to cover any losses incurred. With government assuming all the risk and investors taking in all the profit it’s no wonder NHA MBS are popular among financial counsellors, investment banks, and pension funds. Notably, almost a full half of all NHA MBS purchases are made by asset managers of the kind employed by hedge funds and wealth management firms.

Securitization, or the growth and popularity of mortgage-backed-securities, has grown over the decades. At the time of writing, one-third of Canadian mortgage debt has been bundled and sold on the open market through government managed programs like the NHA MBS.

For decades the government has been transmuting housing debt into esoteric financial products, overseeing the sale of those products, and guaranteeing the financial interests of the speculators who buy them. This is all technocratic enough, but at the beginning of the century another layer of abstraction was introduced. In 2001 a federal program was announced that allowed financial institutions to bundle NHA MBS into something called Canadian Mortgage Bonds (CMB). Like other bonds, investors collect payments on CMB twice a year for a five to 10 year term. When the bond matures the full initial investment is returned to the bondholder. To give an example: if you own $10,000 in CMB with a yield of five percent, you would typically be paid $500 of interest annually, payable in semi-annual installments of $250. At the end of the bond term, you would be repaid the full $10 000 value of your original investment. Your total return after 10 years would be $15,000.

According to the CMHC, CMB “are sold globally to investors and the proceeds are used to purchase insured eligible residential loans, [which are] packaged into marketable NHA MBS.” This completes the circuit of debt commodification. Typically, CMB are bought by institutions such as pensions, investment banks, and states as a stable place to park money with guaranteed returns. They can be quite attractive as far as the bond market goes. CMB have a track record of higher yields than Government of Canada bonds. Right now, a five-year GoC bond pays out at 3.93 percent whereas a five-year CMB pays out at 4.34 percent.

CMHC documents outline that CMB, like NHA MBS, are “fully guaranteed as to timely payment of principal and interest by CMHC. CMHC’s guarantee of CMB constitutes a direct unconditional obligation of CMHC.” CMB are thought of as even more stable investments than NHA MBS—the entire Canadian state would have to suffer a calamity for CMB to fail to pay the promised amount.

The assumption of risk

Decades of government policy has enabled financial institutions to trade mortgages as increasingly abstract financial products backed by state guarantees. Both NHA MBS and CMB have been designed in such a way that if things turn sour the federal government will be left holding the bag. Facing little risk of blowback, asset managers around the country have started taking risks with these products and overextending themselves. For those of us who were old enough to read the news during the 2008 financial crisis, this all sounds very familiar.

But the echoes of the last great depression don’t stop there.

During the pandemic the CMHC warned that banks were giving out high-risk mortgages that put the economy at risk. Post-pandemic, interest rate increases put those mortgage holders in a position where they began having trouble managing their debt. As more and more mortgages are renewed at new rates, delinquency is starting to trend upwards. This crunch is also impacting bigger players in the real estate sector, with the number of insolvent real estate companies and projects climbing rapidly over the past year. The infamous downtown Toronto luxury condo tower, The One, has been among the highest profile projects to fall into delinquency, with lenders owed $1.6 billion (if completed, it will be the tallest building in Canada). These warning signs almost certainly prompted the Bank of Canada to drop interest rates twice in the last six months.

These rumblings are not likely to give the big banks pause. Refinancing mortgages at higher rates means Canadians are handing over even more of their money to financial institutions. Recent economic tremors have been a net positive for the Big Six who increased their market share by 11.8 percentage points in the last year.

It should be noted that these signs of instability are probably not harbingers of an impending economic collapse. There are guardrails keeping things on track that weren’t in place in the lead-up to 2008. For example, all securitized mortgages are insured, meaning that insurance reserves would have to be exhausted before the government would be required to step in. Furthermore, the size of the market of securitized debt is tightly controlled; the total amount of mortgages that can be securitized have an annual limit set by the minister of finance. Canada’s lending market is also regulated to prevent the NINJA loans (no income, no job, no asset) that notoriously presaged America’s sub-prime mortgage crisis.

That said, securitization’s inability to tank the economy does not necessarily make it good policy.

The pros and cons of securitization

Mortgage securitization is a legacy program that’s been expanded by successive Liberal and Conservative governments over the past four decades. It has become part of our political consensus. A program this uncontroversial, this central to the mechanics of our society and economy, must serve some public good. And, in theory, it does.

When investors put money into CMB or NHA MBS, cash lands in the banks which can then be leant out to Canadians looking to take on debt to purchase a home. These state-backed financial products create a stream of capital from national and international markets to the Canadian banking system that can be used to finance mortgages. The Mortgage-Backed Securities Issuer Association (MBSIA) describes the advantages of securitization like this: “the objectives of the program are to increase the supply of funds to and the competitiveness of the mortgage market and thereby lower mortgage costs for Canadians.”

These benefits cast their own shadows. Liquidity may make mortgage debt more accessible, but it also puts inflationary pressure on housing prices. Increasing the amount of money people can borrow increases the amount of money buyers can spend which inevitably increases the amount sellers can charge. An uptick in liquidity represents an uptick in prices. The Office of the Federal Housing Advocate observed that securitization has “driven high increases in home prices that are pushing homeownership beyond affordability for more and more people.” The securitization of mortgages “has transformed Canada’s housing system into an engine of accumulation for the financial sector, while deeply indebting Canadians.” It is through securitization that the financial sector is able to mine our homes for our paycheques.

The supplementary claim that securitization lowers mortgage costs is disputable given that mortgage rates have stuck close to federal interest rates set by the Bank of Canada both before and after the introduction of the MBS and CMB programs. Historical data suggests that mortgage costs are linked closely to the rate at which banks can borrow money from the federal government, not their ability to participate in securitization.

The primary effect of securitization has been to put inflationary pressure on housing prices. The secondary effect has been the commodification of our homes. Housing scholar Alan Walks describes the MHA MBS and CMB programs as having undergirded and justified “the federal shift from the provision of social rental housing toward supporting a rental market increasingly characterized by private sector […] landlord-investors.” Securitization refocuses government policy away from the provision of housing and toward the facilitation of housing via debt.

Securitization by the numbers

The value of Canada’s mortgage debt is now $2.16 trillion—over 100 percent of GDP. $531 billion of that debt is securitized through NHA MBS and roughly $250 billion more are tied up in CMB. If that $781 billion were to collect interest at the current CMB rate of 4.34 percent, then investors would be earning $33.9 billion off of Canadian mortgage debt this year. That’s $33.9 billion in working people’s rent and mortgage payments going directly to the most affluent. For context, $33.9 billion is more than four times what the government spends on housing solutions annually.

Securitization directs the nation’s wealth to the world’s wealthiest, and this upward redistribution of capital is expanding. The deputy prime minister and minister of finance announced the annual limit for CMB creation is being increased from $40 billion to up to $60 billion, while the CMHC has been authorized to guarantee up to $170 billion in NHA MBS—a $20 billion increase over last year.

Historically the federal government has let these programs operate on their own, allowing markets to funnel Canada’s wealth back and form between banks and investors. However, something different is happening this year. In 2024 the federal government intends to purchase 50 percent of the CMB issued. The goal here is to inject liquidity into the housing market. If the banks are pumped full of cash they will then lend that cash out to Canadians to purchase homes, alleviating the housing crisis through the issuance of yet more debt.

There are alternatives

But why go through this roundabout process? If the government wants to buy and own mortgages, why bother involving financial oligarchs? Why not just lend the money directly to citizens through a publicly-owned retail bank? The government could lend at terms favourable to homebuyers and use the interest paid on those mortgages to fund the construction of social housing. Those unable to (or simply not wanting to) purchase their own homes could live in comfort and dignity, paying rent-geared-to-income in well-maintained co-ops, not-for-profit, and government owned housing. These are the sorts of policies we’d expect to see from a government was seriously committed to the notion of housing as a human right.

For now, proposals like these are beyond the pale. Instead, the Government of Canada remains committed to turning the nation’s housing stock over to speculators, one mortgage-backed security as a time.

Securitization is a giant Rube Goldberg machine for the upward redistribution of wealth. At best, financial products like the NHA MBS and the CMB guarantee that buyers and sellers have access to the capital they need to complete their transactions. Yet even under this rubric the long-term effects of inflated housing prices go accounted for.

If the goal is to solve the housing crisis, the poison pill of liquid markets is not even close to enough. Prices must go down, speculators must be removed from the housing system, and government policy must be reoriented away from financialization and toward the decommodification of our homes.

James Hardwick is a writer and community advocate. He has over ten years experience serving adults experiencing poverty and houselessness with various NGOs across the country.