How do those crafty Canucks do it?
The same way that we crafty Canucks got along with no Glass-Steagall-type legislation since 1988.
(Well, someone had to say it.)
free market?
Canada makes a useful comparison for the U.S. Both countries are rich, advanced, stable, have sophisticated financial systems and pioneer histories, and stretch from Atlantic to Pacific. But Canada has no housing GSEs. Mortgage interest is not tax deductible. It does not have 30-year fixed rate, freely prepayable mortgage loans. Mortgage lending is more conservative and much more creditor-friendly.This relative creditor conservatism has meant that Canada and Canadian banks have so far come through the international financial crisis in much better shape than their U.S. counterparts.
Canadian mortgage lenders have full recourse to the mortgage borrower's other assets and income, in addition to having the house as collateral. This means there is little incentive for borrowers to "walk away" from their mortgage. The absence of a tax deduction for mortgage interest probably increases the incentive to pay down debt. Most Canadian mortgage payments are made through automatic debit of the borrower's checking account--a technical but important point. Canadian fixed-rate mortgages typically have prepayment penalties to protect the lender and the interest rate on the loan is fixed for only up to five years.
This relative creditor conservatism has meant that Canada and Canadian banks have so far come through the international financial crisis in much better shape than their U.S. counterparts. Canada didn't avoid the recession, but mortgage delinquencies have so far remained much lower than in the U.S., with the percentage of loans delinquent 90 days or more at approximately one-tenth of the U.S. level.
What about the home ownership rate--the percentage of all households owning their own home? Isn't there a home ownership price to pay for this Canadian credit conservatism? No.
Here's the home ownership rate in Canada: 68%. In the U.S. it's 67%.
The Canadian system would indicate that our hodge-podge of tax deductions, government pseudo-banks and regulatory skullduggery are just favors to the bankers and the housing industry. They don't increase home ownership and they do tend to cause recessions.
Good refutation. What about other loans? A car loan has an instantly depreciating asset as collateral, but some fool still loans money to buy them. Must be a Newt thread.
>>How do those crafty Canucks do it?<<
It’s a good question. I believe Canada relies heavily on Government required “Mortgage Insurance” for any mortgage that a National Bank holds. And from the attached, the loan parameters are much more “conservative” which means “restrictive”.....i.e. loans reset as opposed to the 30 year fixed that America loves, etc.
And of course I don’t think the percentage of home ownership can match the USA on a historical basis.
My point is that for American Homeowners to continue to get into homes as easily as they did (before the fraud of stated low doc loans that ruined everything)...there is no better model. They just need to go back to the basics. Verify everything. Income, employment, credit and property value. http://www.imf.org/external/pubs/ft/wp/2009/wp09130.pdf
I’m sure by the time I post this lots of people will say “of course there is. It’s the free market!!!!”
Go to YouTube and search “Free to Choose” or Milton Freeman and educate yourself a bit. Sheesh.
I replied to the wrong post....sorry!