NNOVATION IN UNDING - MBSIA

1 Timely Payment GuaranteeCANADAMORTGAGEBONDSPROGRAMDESCR IPTIONINNOVATION INMORTGAGEFUNDINGC anada Mortgage Bonds (CMB), a new and innovativemortgage funding vehicle, are designed to offerat tractive oppor tunities for investment into Canadianresidential mor tgages and help to ensure Canadianshave access to affordablemortgage OFCANADAMORTGAGEBONDSC anada Mor tgage Bondsrepresent the latest evolutionfor mortgage funding in the Canada Mor tgageBond Program, investors receivea fixed interest coupon bondwith interest payments madesemi-annually over the term ofthe bond and repayment ofprincipal on a specified maturit ydate. The timely payment ofinterest and principal to inves-tors is guaranteed by CMHCand backed by the Governmentof Mor tgage Bonds will beissued through a newly createdspecial purpose trust known asthe Canada Housing Trust (CHT).The Trust sells non-amortizing Canada Mortgage Bondsto investors and uses the proceeds to purchase mor tgagespackaged in newly issued National Housing ActMor tgage-Backed Securities (NHA MBS) from Approved Mor tgage Bond investors are then paid interestand principal from the proceeds of the underlying mort-gages collected by MBS Sellers on behalf of the Trust.

2 Toprovide investors with a bond like investment, the Trusttransforms the monthly cashflows from NHA MBS pools intonon-amortizing bond cash flowswith fixed interest payments andprincipal at maturit MBS are created when aCMHC Approved Seller bringstogether a pool of eligiblemor tgages for the purpose oftransforming the mortgages intosecurities which can be sold toinvestors. Approved Sellers aret ypically mor tgage lenders suchas banks, trust companies, andother t ypes of Mor tgage Bonds willbe issued in denominationsas low as $1,000 and can beissued for any term, however,initial issues will likely be for afive year term. As an attractiveinvestment opportunity, CanadaMor tgage Bonds will be easilyaccessible to both institutional>>>>>>>>>>>>>>>>>>>>>>>>>>> >NHA MBSC anada Housing TrustCash Flow TransformationMortgages Pooled in NHA MBS by SellersCanada Mortgage BondsInvestorsCMHCT imelyPaymentGuaranteeMortgages Pooled in NHA MBS by SellersInvestorsand retail investors and can be bought through investmentdealers, banks, trust companies, and other t ypes offinancial Canada Housing Trust will purchase insuredmortgages packaged into newly issued NHA MBS poolsthat meet a certain eligibilit y criteria from ApprovedSellers.

3 For example, each pool must have a minimumportfolio value of $ 2 million and contain mortgages thatmature no sooner than six months prior to bond maturit MARKETPARTICIPANTSThe delivery of Canada Mortgage Bonds requires theinvolvement of several key market par ticipants including:Approved NHA MBS Sellers; a Trustee and TrustAdministrator for the special purpose trust; a CentralPaying Agent (CPA); a Custodian; and CMHC asthe Guarantor and Financial Ser vices Advisor (FSA).Approved MBS Sellers are financial institutions thathave been approved by the Guarantor to sell mor tgagespackaged into newly issued NHA MBS into the must be federally or provincially regulated andmust have a minimum net worth and credit rating asspecified by the special purpose trust for Canada Mortgage Bonds isestablished by a trust company who also acts as Trust issues bonds guaranteed by the Guarantor andwith the proceeds purchases eligible NHA MBS fromApproved Sellers. The day-to-day activities of the Trustare administered through a Trust , as Guarantor, establishes requirements that theTrust must meet in order to obtain the guarantee fromCMHC.

4 As Financial Service Advisor, CMHC will providethe Trust with cer tain financial advisory ser vices relatingto determining market demand for bond issuance, andengagement of an under writing syndicate to under writebond Central Paying Agent acts on behalf of the Trust tocarry out certain payment functions including collectionof monthly payments from NHA MBS purchased by theTrust and the administration of cash Custodian maintains custody of all documentationon behalf the Trust relating to mortgages, securities, andall other collateral BENEFITHOMEBUYERSAND THEHOUSINGINDUSTRYC anada Mor tgage Bonds fur ther enhance investmentinto the Canadian residential mor tgage market , benefitinghomebuyers and the entire Canadian housing Mor tgage Bonds provide the market with a com-petitive and alternate source of mor tgage funds, whichwill help reduce mor tgage financing costs for a tool for managing liquidit y, capital, and risk, CanadaMor tgage Bonds enable the mor tgage lending industry tofurther increase the supply of low cost mortgage fundsavailable to Mor tgage Bonds allow for more retail and insti-tutional investment in Canadian residential mortgages,while providing investors with high quality, easily tradable,guaranteed investments.