I read an interesting article in the Charlotte Observer this morning. The link is below. It's any ones guess what will happen with regard to Fannie & Freddie, the mortgage interest deduction, and the future direction of the US mortgage industry, but I found two things about Canadian mortgage industry quite interesting.
One is that mortgage loans in Canada are "full recourse" loans. Which means that if the borrower defaults, he/she is still on the hook for the deficiency balance after the home is sold in foreclosure. Can you say, "no more strategic defaults?" I can think of a few other possible benefits to such an arrangement.
The second is that their is no secondary market for mortgage backed securities in Canada. I'm certain there are multiple pros and cons to this scenario.
Here are a few possible pros to the Canadian differences:
1. Perhaps the bank working with a delinquent homeowner might have more options and incentives to help their borrowers.
2. Perhaps banks might be able to make more logical lending decisions rather than only lend to those who fit into Fannie & Freddie's box. (Govie loan underwriters often impress me with flashes of logic)
3. Perhaps borrowers would give their budgets a second or third review before signing on the "dotted line" if they knew they'd be responsible for the debt; house or no house.
4. Perhaps, and perhaps best of all, it might eliminate Wall Street gambling on the future of so many American citizens who identify home ownership as a part of our American Dream.
Happy MLK Day.
http://www.charlotteobserver.com/2011/01/16/1983796/canada-avoids-us-mortgage-crisis.html
