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Mortgage securitization is the process of pooling multiple mortgages together and selling interests in that pool to investors as securities, rather than the originating lender holding every mortgage to maturity on its own balance sheet. It is a core funding mechanism for lenders — particularly monoline lenders — that do not fund mortgages primarily through deposits.
A lender that securitizes mortgages frees up capital as soon as a pool is sold to investors, allowing it to originate more mortgages instead of waiting decades for each existing mortgage to be repaid. In Canada, NHA MBS built on CMHC-insured mortgages is one major securitization channel.
A balance sheet lender takes the opposite approach, holding mortgages itself using deposits or other funding rather than selling them into securitized pools; many lenders use a mix of both approaches.
CMHC-backed and private channels both exist: securitization in Canada includes CMHC-guaranteed vehicles built on insured mortgages, as well as private securitization of conventional mortgages that does not carry a federal guarantee.
Underpins the monoline model: Monoline lenders, which do not take deposits, rely heavily on securitization to fund the mortgages they originate through the broker channel.
Regulated under OSFI oversight: federally regulated lenders’ securitization activity, including reliance on CMHC securitization programs, falls under OSFI’s broader prudential oversight of residential mortgage underwriting and funding practices.
Distinct from portfolio insurance: a lender may separately buy portfolio insurance on uninsured mortgages specifically to make them eligible for securitization, a related but distinct step.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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