Statistically, three out of four homes in the United States are worth what the mortgage is paid on them. In November of 2011, an estimated one out of every four hundred and ninety two homes went into the foreclosure process. Analysts are unable to determine where the U.S. will bottom out in real estate for the fourth consecutive year.
This isn’t the case, however, in Canada. Little attention is paid to Canada’s mortgage finance system by the U.S.. Historically, none of the banks in Canada failed when the Great Depression hit, and this trend continues during what the United States refers to as the Great Recession. According to published reports, there are fewer than one percent of mortgages in Canada that are delinquent.
How did Canada come out on top with real estate?
A vice president from the Canadian Bankers Association in Ottawa answered this question by simply stating they give loans to individuals able to pay them back. It sounds simple, according to one of the CEOs, but it’s how the business works.
Comparatively speaking, real estate agents in Canada aren’t quite as busy considering the differences in populations. There’s an estimated 34.3 million residents living in Canada, and the population of the USA is more than 307 million. Canada ranks ninth in the world’s economy, and the USA ranks number one.
The World Economic Forum ranked Canadian banks best in the world in recent years. However, it’s noted they’re a small group of lenders. There are 71 that have federal regulators, compared to the U.S. lenders having more than 8,000. The Federal Deposit Insurance Corporation provides insurance to U.S. lenders.
Considering how conservative Canada is, though, there’s a lot to learn from their regulatory process. The standards required are more complex, and the set-asides in preparation for economic downturns or other losses are bigger.
There are also no big write-offs on taxes for Canadian homebuyers. All they receive is a capital gains tax exemption. The fact that there are no mortgage interest deductions allows Canadian homeowners to quickly pay down their mortgages. There is also no such business model similar to Freddie Mac or Fannie Mae in Canada.
Another difference between Canada and the USA when it comes to mortgages is, if a Canadian loses their home, they are still required to pay off the mortgage debt. This is called a non-recourse loan, and it prevents Canadian homeowners from walking away from their real estate loan debt. Real estate agents disclose all of this information to potential homebuyers before the process begins. These Canadian lessons prove useful to the United States.
Mortgage-interest deductions issued in the U.S. likely won’t come up in the coming year when Congress begins debate on reducing the deficit. It’s been recommended that the USA scale back considerably on mortgage-interest deductions in order to lower debt and create more revenue used to reduce deficits.
The National Commission on Fiscal Responsibility and Reform made this recommendation, but it wasn’t put on the table. However, there are a large number of defenders of the real estate mortgage deduction stating it helps drive homeownership in the USA.