To: Credit Unions and Caisses Populaires

4711 Yonge Street 4711, rue Yonge Suite 700 Bureau 700 Toronto ON M2N 6K8 Toronto (Ontario) M2N 6K8 Telephone: 416-325-9444 Téléphone : 416-325-9444 Toll Free 1-800-268-6653 Sans frais : 1-800-268-6653 Fax: 416-325-9722 Télécopieur : 416-325-9722

August 13, 2014

From: Guy Hubert, Vice President, Regulation and Risk Management

Subject: Market Risk Advisory # 2 – Investments in a Portfolio of Individual Mortgages and Mortgage Pools

This Market Risk Advisory reviews the legislative limitations and DICO’s expectations regarding the investment by credit unions in portfolios of individual mortgages and mortgage pools.

It also sets out due diligence considerations that the credit union and Board of Directors should consider when undertaking the investment in portfolios of individual mortgages and mortgage pools and provides examples of these types of investments.

To assist in fulfilling their duties, directors may find the following list of questions and considerations helpful in discussions with management when reviewing practices surrounding these investments:

 Does our investment policy currently allow for investments in a portfolio of individual mortgages or a mortgage pool?  Is our credit union holding an investment in a portfolio of individual mortgages or a mortgage pool? Was the board aware that such an investment had been made?  What steps have we taken to ensure legislative limits are being followed?  If legislative limits have been exceeded, what steps have been taken to either bring the investment in line or dispose of the investment?  Has management conducted the appropriate due diligence for these investments?  Has management implemented a comprehensive risk assessment process to report and monitor these investments?  If we determine that we have made an investment that it is not in compliance with the Act or Regulations, have we contacted our DICO Relationship Manager?  If the investment is considered unsecured, what is the impact of these investments on regulatory capital ratios?

The Market Risk Advisory is available on DICO’s Website in English and at www.dico.com or in French at www.soad.com.

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