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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