Canadian Mortgage and Banking Practices Praised
As the G20 summit approaches world attention is shifting to
Toronto – and the success of Canada in largely avoiding the recent global banking crisis is not going unnoticed, says the Associated Press.
According to the AP, “World leaders have noticed: President Barack Obama says the U.S. should take note of Canada’s banking system, and Britain’s Treasury chief is looking to emulate the Ottawa way on cutting deficits.”
Former Prime Minister, Paul Martin cites better management practices and better government regulation of the banks as the key factors in seeing Canada through the recent banking and lending crisis that played havoc with other advanced and developing economies. “We should be proud of the performance of our financial system during the crisis,” current Finance Minister, Jim Flaherty, told the Associated Press.
That there was no mortgage market meltdown or subprime crisis (as seen in the U.S.) was in large part because Canadian banks – unlike their American counterparts – do not repackage (or securitize) their mortgages and sell them to the private market. Thus, mortgage lenders remain much more concerned about their borrowers’ ability to repay and the Canadian mortgage market remains both competitive and robust.
As a result, Canada seems to be recovering from the recession caused by the banking crisis faster than other developed economies, with the International Monetary Fund predicting Canada will be the first of the G7 economies to wean itself from large deficits as a result of stimulus spending. The IMF reportedly expects Canada to return to surplus budgets by 2015.
While this is good news overall for Canadians, the short-term downside for consumers is that Canada became the first major economy to raise interest rates earlier this month. Moderate rate increases may be expected in the coming months. Thus, for households looking at acquiring or refinancing a mortgage, action on those fronts sooner rather than later may be the best strategy.
