Defenders of the Canadian way are predictable.
Without saying so, they always have the same refrain: weâ€™re superior to the Americans.
Used to be that Yanks shot people in anger, while we kept the peace. Not so much now. Or that Americans dismiss altruistic causes such as the environment, while we embrace them. Er, not according to Copenhagen. Or that they apathetically eschew politics, while we take voting seriously. Oops, not after half of us didnâ€™t bother turning up last time. Or how about those lax US lending standards and excessive debts, while we save and be frugal? Pffft there, too.
In fact, this myth du jour has been bandied about a lot recently by those seeking to justify Canadian house prices, and swearing our banks are buttoned-down, puritan, mormonesque, Amish pilgrims compared to those dollar-drenched, easy-credit Yankee hucksters. No subprime loans here!
Of course, this is untrue.
- Canada sanctioned government-insured mortgages of 100% as well as 40-year amortizations with which virtually no principal was repaid. If encouraging people without money to buy houses is prudent, Iâ€™m on the wrong bus.
- Of course Ottawa saw the error of its way and changed this to a 5% down and 35-year am. So how does 95% state-sanctioned real estate financing in Canada compare with that to the south? I think the following statements are interesting â€“ the first from the US government mortgage giant Fannie Mae, and the second from our own beloved CMHC:
Fannie Mae: â€œYour lender will ask how much money you have available for a down payment. A down payment of 20 percent or more of the home purchase price demonstrates your commitment to long-term homeownership and provides you with immediate equity in a new home.â€
CMHC: â€œDown Payment. With mortgage loan insurance from CMHC you can own your home with as little as 5% down payment.â€
- As for so-called â€˜liar loans,â€™ a staple of the subprime culture in the US, in which bankers handed over money to people without asking them to verify income, we’ve been doing the same in Canada for some time. Like this, from CIBC:
â€œWe recognize that the self-employed have traditionally faced greater scrutiny in qualifying for mortgage financing. That’s why CIBC has streamlined the mortgage approval process to ensure our self-employed customers receive the respect and credit they deserve when applying for a mortgage. Approval is based on your self-declared income, strong equity and excellent personal credit history. Best of all, you don’t need to prove your income.â€
- Hmmm. And how about those â€˜teaserâ€™ loan rates that trapped hundreds of thousands of Americans into mortgages which were destined to reset at higher interest charges? Lenders told borrowers that rising equity would bail them out, but that just didn’t happen. And how were those so different from the â€˜Teaser Carneyâ€™ rates we currently have in effect in Canada? Are lenders telling people they should borrow only on the condition they qualify under the rate structire we all expect to be in place in a couple of years?
Not according to people posting on this site. From Sunday’s comment section:
â€œThe banks will give a loan to anyone. Just go to the bank and see. The bank wanted to give us $700,000 and we make $115,000 together.â€
â€œYeah, the bank also wanted to give me $458, 000 and I make $68,000 a year. I walked out of there thinking there is absolutely no way I can carry that big of a mortgage. People I know were all happy for me the bank gave me such a figure, the same people telling me to buy buy buy.â€
While the official policy of the Big Banks and CMHC is that borrowers should have mortgage debt service costs no greater than a third of their income, or restrict home loan borrowing to less than four times their annual take, comments like these make a lie of it. When people in Toronto, Calgary and especially Vancouver are offered mortgages equal to six, seven or eight times their yearly household income â€“ at interest rates which can only go in one direction â€“ how can anyone expect anything other than what we have?
Thereâ€™ll be plenty of blame to spread.
None of it to the south, eh?