01 March 2010

Mark Perry, a visiting scholar at the institute, says Canada’s system proved “more prudent, more resilient, and much less prone to excesses.” He says examining the differences between the U.S. and Canada might lead to more insight as to how America’s difficulties started and what reforms are necessary.

He outlines eight major advantages to Canada’s system: full recourse mortgages, shorter-term fixed rates, mortgage insurance is more common in Canada, no tax deductibility of mortgage interest, higher repayment penalties, public policy differences on low-income housing, a more concentrated bank system, and a lower rate of loan originations.

“While Canada’s banking system has promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, the U.S. banking system seems to have encouraged excessive lending to risky borrowers because of the political obsession with homeownership,” Perry writes.

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