Wednesday, May 13, 2009
Regulation Didn't Save Canada's Banks - WSJ.com
Regulation isn't often the answer to good economies.
Usuakky, when governments interfere trouble arises.
In Canada, banks apparently run the old fashioned way, and ARE successful...
Usuakky, when governments interfere trouble arises.
In Canada, banks apparently run the old fashioned way, and ARE successful...
In the Wall Street Journal we learn why:
"Canadian banks are not compelled by laws such as our Community Reinvestment Act to lend to less creditworthy borrowers. Nor does Canada have agencies like Fannie Mae and Freddie Mac promoting "affordable housing" through guarantees or purchases of high-risk and securitized loans. With fewer incentives to sell off their mortgage loans, Canadian banks held a larger share of them on their balance sheets. Bank-held mortgages tend to perform more soundly than securitized ones.
In the U.S., Federal Housing Administration programs allowed mortgages with only a 3% down payment, while the Federal Home Loan Bank provided multiple subsidies to finance borrowing. In Canada, if a down payment is less than 20% of the value of a home, the mortgage holder must purchase mortgage insurance. Mortgage interest is not tax deductible.
The differences do not end there. A homeowner in the U.S. can simply walk away from his loan if the balance on his mortgage exceeds the value of his house. The lender has no recourse except to take the house in satisfaction of the debt. Canadian mortgage holders are held strictly responsible for their home loans and banks can launch claims against their other assets.
And yet Canada's homeownership rate equals that in the U.S. (Both fluctuate, in the mid to high 60% range.)"
