- Canadian government does not have a goal of increasing the rate of home ownership. Rather, they encourage the availability of housing across a variety of tenure types – home ownership, rental housing, supportive housing and transitional housing. The housing needs of low-income Canadians are addressed through government assistance programs.
- In the United States, federal policy actively encourages home ownership. Consistent with this policy, Fannie Mae and Freddie Mac, as government-sponsored enterprises were, before the recent economic downturn, required to support mortgages to low-income borrowers in specific neighborhoods and geographic areas, as well as to other high-risk groups. At the same time, as privately owned companies, Fannie Mae and Freddie Mac endeavored to maximize shareholder returns.
- In Canada, the Bank Act prohibits federally regulated banks from providing residential mortgages without mortgage loan insurance if the loan is greater than 80 per cent of the purchase price or value of the home. This insurance, which can be purchased from Canadian Mortgage and Housing Counsel or private insurers, covers the entire amount of the loan and is for the entire life of the mortgage.
- In the United States lenders are not legally required to use mortgage loan insurance. However, because Fannie Mae and Freddie Mac are prohibited from purchasing uninsured mortgages when the borrower makes a down payment of less than 20 per cent, U.S. lenders will often require mortgage loan insurance.
- In Canada, the most common mortgage is the five-year fixed-rate closed mortgage. Historically in the United States, the most common mortgage has been the 30-year fixed-rate open mortgage.
- In Canada, mortgages are typically “full-recourse” loans, which means the borrower continues to be responsible for repaying the loan even in the case of foreclosure. Lenders can take legal action to recoup money from the homeowner if a foreclosed home is sold for less than the amount owing on the mortgage, plus many of the costs incurred by the lender. In many United States jurisdictions, mortgages are “non-recourse,” which means that borrowers can often walk away from their homes and the associated mortgage debt, leaving lenders with no recourse beyond the property.
- The sub-prime market did not take hold in Canada to the extent that it did in the United States. During the period leading up to the economic downturn the vast majority of mortgages in the U.S. were originated by third parties and were ultimately packaged and sold to investors who often did not understand the associated risk. Most mortgages in Canada are originated and retained by financial institutions whose goal is to maintain a long-term relationship with the borrower. Even when a mortgage is securitized, the originating lender most often continues to service the mortgage.
- The resilience of Canada’s housing finance system during the recent financial crisis may be linked to a combination of factors, including prudent lending practices, a strong banking sector, careful regulatory oversight, supportive government involvement in mortgage insurance and securitization, and Canada’s broader public policy backdrop, which does not place undue preference on homeownership.
- About 29 per cent of Canadian residential mortgages have been securitized, compared to about 60 per cent in the United States. Almost all securitized Canadian mortgages are funded by mortgage-backed securities (MBS) guaranteed by Canadian Mortgage and Housing Counsel under the National Housing Act. Over half of those MBS were held by the Canada Housing Trust, funded by Canadian Mortgage and Housing Counsel -guaranteed Canada Mortgage Bonds (CMBs).
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