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O Canada, you sensible land!

By Jay MacDonald · Bankrate.com
Monday, May 9, 2011
Posted: 9 am ET

What's the best way out of our bubble-bust-bubble mortgage muddle that has resulted in a record 2.87 million American foreclosures last year alone? The answer may lie due north.

O Canada, you have no doubt watched our housing-driven Great Recession with the stern if sympathetic eye of a schoolmaster who well knows the fate of all undisciplined schoolboys.

During our financial meltdown, not a single Canadian bank failed. Less than 1 percent of Canadian mortgages are in arrears. And this in a land that doesn't even afford its homeowners the courtesy of a tax break on their mortgage interest!

I was gob-smacked by a recent McClatchy report out of Toronto with the headline, "Canada's mortgage system works." Of course, compared to our system, falling as it does somewhere between a faulty pachinko game and three-card Monte, most of the developed world could make the same claim.

Canada owes its housing stability in large part to a conservative regulatory environment that holds its 71 federally regulated lenders to stricter underwriting standards and larger reserve requirements for potential losses than does its U.S. counterpart.

There is no Canadian equivalent of Fannie Mae and Freddy Mac, which purchase mortgages from banks and bundle them into bonds. Did I mention that Fannie and Freddy have been in government conservatorship since mid-2008?

As far as tax incentives go, Canadian homeowners are allowed an exemption on capital gain from the sale of their primary residence, period. Yet their homeownership rate is equal to or greater than ours here in Sud Moosejaw.

Stuart Gabriel, a finance professor at UCLA, sees it this way:

"They've insisted all along on the more rigorous mortgage underwriting, and because of that never found themselves originating subprime and no-doc mortgages … some very basic items such as stringency of underwriting seem to go a long way."

Indeed. Now I'll grant you, corralling a total of 71 lenders for 34 million citizens may be a tad easier than wrangling 8,000-plus FDIC-insured lenders serving 310 million. But it's still ironic that Canada's conservative mortgage system is unfazed while our "free market" version – and I use those quotation marks intentionally – has resulted in the largest financial meltdown since the big one.

O Canada, please send some of your common sense our way as we attempt to dismantle our house of cards and start over. Hopefully with two-by-fours.

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18 Comments
Doug
May 10, 2011 at 10:55 pm

And what banks in the U.S. are currently in front and leading the way, as far as strong, sound financial institutions? TD & RBC. TD stands for "Toronto Dominion" and RBC stands for "Royal Bank of Canada", so indeed, the Canadian banks which are now making their presence known in the U.S. are strong as ever, on both sides of the border.

Andy Mackin
May 10, 2011 at 10:13 pm

Jodoin, it's the conservatives who wanted to deregulate during the liberal governments of the late 90's and early 2000's.

Denis
May 10, 2011 at 9:49 pm

A few words on the comments to this point:
Another thing we do not do is point (accusingly) at each other.
If one party got us in trouble, we know we need that party to get us out of it as well...it's a team thing
We have had a conservative gov't for the past 4 years and will have one for the next 4, Canada's banking business principles have been in place since post WWII and have been improved by both left and right leaning gov't.
And yes, although it is a regulated industry, it is also highly competitive.

kdawg
May 10, 2011 at 4:11 pm

Exactly. Any system without the PROPER checks and balances is doomed to eventually spiral out of control and fail.

Canyes
May 10, 2011 at 3:15 pm

Actualy the Liberal Government of Canada with the Minister of Finance Mr. Paul Martin ensured that the Canadian Banks did go down the road of slimy greed. If given the chance as they requested they would have for sure. Interesting as well in Canada a Conservative Government has never balanced a budget since confederation. I would not be surprised to hear the same about the US

American Goalie
May 10, 2011 at 8:04 am

The rules and regulations which allowed these disastrous "derivative contracts" and mortgage bundling were passed during the Clinton administration, remember. Likewise, lending requirements were eased not by Bush, but by Clinton, in an effort to increase minority home ownership in the US. Yes, the Bush administration was asleep at the wheel in their oversight of the banking industry, but the Senate Banking Committee and the House Financial Services Committee were both chaired by prominent Democrats, and neither committee seemed to be doing its job, either.

Moral: Leave the left wing and the right wing on the hockey rink, and keep them out of government.

G. Jodoin
May 09, 2011 at 9:42 pm

Yes I must admit we were lucky to have had the conservatives and not the liberals.That is why we have elected them for another four years.

Jay MacDonald
May 09, 2011 at 3:57 pm

I know. What a concept, right?

Longfellow
May 09, 2011 at 2:04 pm

We used our tax dollars to kick people out of their homes, instead of letting the bankers miss a round of golf.

Donnat
May 09, 2011 at 11:13 am

Canada's works because it's REGULATED.