Statistically, three out of every four homes in the United States are worth what you pay for the mortgage. In November 2011, it was estimated that one in every four hundred ninety-two homes was in 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 per cent of mortgages in Canada that are in default.
How did Canada get to the top in real estate?
A vice-president of the Canadian Bankers Association in Ottawa responded to this question by simply stating that they make loans to people capable of repaying them. It sounds simple, according to one of the CEOs, but that’s how the business works.
Comparatively speaking, real estate agents in Canada are not that busy considering population differences. An estimated 34.3 million residents live in Canada and the population of the United States exceeds 307 million. Canada ranks ninth in the world economy and the United States ranks number one.
The World Economic Forum has 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 U.S. lenders that have more than 8,000. The Federal Deposit Insurance Corporation provides insurance to U.S. lenders.
However, considering how conservative Canada is, there is a lot to learn from its regulatory process. The required standards are more complex and the reserves to prepare for economic crises or other losses are greater.
There are also no big tax write-offs for Canadian homebuyers. All they receive is an exemption from capital gains tax. The fact that there are no mortgage interest deductions allows Canadian homeowners to pay off their mortgages quickly. There is also no business model similar to Freddie Mac or Fannie Mae in Canada.
Another difference between Canada and the United States when it comes to mortgages is that if a Canadian loses their home, they still have to pay off the mortgage debt. This is called a non-recourse loan and prevents Canadian homeowners from abandoning their home loan debt. Real estate agents reveal all of this information to potential homebuyers before the process begins. These Canadian lessons are useful for the United States.
Deductions for mortgage interest issued in the United States probably won’t emerge next year, when Congress begins debate on deficit reduction. It has been recommended that the United States sharply reduce mortgage interest deductions to reduce debt and create more revenue used to reduce deficits.
The National Tax Reform and Responsibility Commission made this recommendation, but it was not put on the table. However, there are a number of proponents of the home mortgage deduction who say it helps boost homeownership in the United States.
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