Statistically, three out of every four houses in the United States are worth the price of the mortgage. In November 2011, an estimated one in four hundred and ninety-two homes went into foreclosure. Analysts cannot determine where the United States will bottom out in real estate for the fourth year in a row.
However, this is not the case in Canada. The United States pays little attention to Canada’s mortgage financing system. Historically, none of Canada’s banks failed when the Great Depression hit, and this trend continues during what the United States calls the Great Recession. According to published reports, there are less than one percent of mortgages in Canada that are in default.
How did Canada get to the top with real estate?
A vice president of the Canadian Bankers Association in Ottawa answered this question simply by stating that they make loans to people who can repay them. It sounds simple, according to one of the CEOs, but this is how the business works.
Comparatively speaking, real estate agents in Canada are not that busy considering the differences in populations. There are an estimated 34.3 million residents living in Canada and the US population is over 307 million. Canada ranks ninth in the world economy and the US number one.
The World Economic Forum ranked Canadian banks as the best in the world in recent years. However, it is noted that they are a small group of lenders. There are 71 that have federal regulators, compared to US lenders who have more than 8,000. The Federal Deposit Insurance Corporation offers insurance to US lenders.
However, considering how conservative Canada is, there is a lot to learn from its regulatory process. The standards required are more complex and the sections in preparation for economic recessions or other losses are greater.
There are also no big tax write offs for Canadian home buyers. All they get is an exemption from capital gains tax. The fact that there are no deductions for mortgage interest allows Canadian homeowners to pay off their mortgages quickly. Nor is there a business model similar to Freddie Mac or Fannie Mae in Canada.
Another difference between Canada and the US when it comes to mortgages is that if a Canadian loses their home, they still have to pay the mortgage debt. This is called a no recourse loan, and it prevents Canadian homeowners from abandoning their home loan debt. Real estate agents release all of this information to potential home buyers before the process begins. These Canadian lessons are useful for the United States.
Mortgage interest deductions issued in the US are likely not to emerge next year when Congress begins debating deficit reduction. It has been recommended that the US significantly reduce mortgage interest deductions to reduce debt and generate more income to reduce deficits.
The National Commission for Fiscal Responsibility and Reform made this recommendation, but it was not put on the table. However, there are a host of proponents of the home mortgage deduction who claim that it helps boost home ownership in the US.