ever wonder why Canada’s foreclosure rate is less than .5%? will the US ever learn?
Our neighbors to the north are just about the only developed nation that did not have a housing and credit crunch. What’s been their key to averting disaster? Were they just lucky?? No, they simply followed basic fundamentals.
For example, Canada requires that their banks have meaningful capital to deal with emergencies — unlike our banks. In addition, their financial institutions are not permitted to make crazy 30:1 bets with leveraged money like we had AIG, Bear Stearns and Merrill Lynch doing.
On the question of mortgages, Canada requires that homebuyers have a 30 percent down-payment. And you either must have the financial wherewithal to afford your monthly payment or you don’t get the loan. As a result, their default rate has been less than one percent even in the midst of a worldwide housing meltdown.
Canada’s banks never lowered their lending standards like ours did, either. Our banks got to the point where they didn’t care if you could pay your mortgage or not.
Why? They simply packaged your mortgage with others into securities and sold them off, making their money that way. The Canadian lenders, however, never unloaded their mortgages en masse, so they had extra incentive to make sure they didn’t make foolish loans.
In related news, the British have a great idea about requiring banks to draw up a living will that outlines an insolvency plan at no cost to taxpayers.
Clark would love to see this in the United States. If banks fail to detail their exit strategy, they should get the immediate death penalty: A ban on any new business transactions; loss of FDIC insurance; and their stockholders should be completely wiped out.
And what’s more, it’s easy to point fingers at the politicians and the business sector and blame them, however it’s more accurate to point fingers at those who bought properties they knew they couldn’t afford. Are you going to blame the dope dealers or the dopes who smoke it?