Federal political leaders debated the state of the Canadian economy on Thursday night. Prime Minister Harper said confidently, “We don’t have a mortgage meltdown in Canada.” Whereas Liberal Leader Stephane Dion said that if he is elected, he will meet with the Canada Mortgage and Housing Corporation and Canada Deposit Insurance Corporation to discuss the existing regulatory framework for mortgages, and find out if it needs bolstering. Does it? Or would we be more protected from fall-out of the American mortgage crisis by cutting taxes and interest rates, and targeting government spending better?
Scotiabank tells us these Canadian financial statistics have been stable since the 1980’s:
- Only 24% of Canadians need to secure their mortgages because they have a low down payment, and it is done with government support through CMHC or GE. By contrast, many Americans are engaged with a tangle of multiple private lenders.
- Most Canadians have less debt than Americans. Canadians’ household liabilities are usually about 20% of their assets. By contrast, Americans are indebted 26% and that is increasing over time.
- Most Canadian homeowners have a net equity of 65% to 70% of the value of their homes.By contrast, Americans have only 45%. In other words, Americans tend to owe banks more than their homes are worth.
Toronto homes steadily increase in value about 4% or 5% per year.Miami homes gain and lose value dramatically in the space of a few months. If your banker can’t figure out how much you actually owe and how much your property is actually worth, then you cant get credit.
One in every 20 Canadian mortgages is subprime. At least 1 in every 6 American mortgages is subprime. If a U.S. mortgage was arranged from 2004 to 2006, the likelihood is 1 in 4 that it is subprime. Canadians must provide proof of income, job verification and collateral to get a mortgage. Many Americans got mortgages as NINJA: No income, no job, and no assets.Hence, only 0.27% of Canadian lenders foreclose on defaulted mortgages, but 4.5% of mortgages in the U.S. are ready for foreclosure because they are 90 days in arrears. Canadians do not have a perfect mortgage system, but it is very strong and could serve as a model of safety for Americans. If it ain’t broke, don’t fix it.
