Canadian mortgage and banking system

An article explaining the differences between Canadian and other Anglo-Saxon banks. Essentially, the US system makes the highs higher and the lows lower-- very different from the tamer Canadian system.

Perhaps the most striking divergence between Canada and America is in their regulation of mortgages. Interest paid on home loans is tax-deductible in America, encouraging people to borrow more; not so in Canada. American mortgages are non-recourse in many states, making it harder for lenders to pursue defaulting borrowers; not in most of Canada. (Then again, Britain is like Canada in these respects but still has soaring defaults).

Canadians taking out mortgages with a loan-to-value ratio over 80% must also take out insurance on them from a federal agency called the Canada Mortgage and Housing Corporation (CMHC). The banks insure the rest of their portfolios with the CMHC, which keeps them honest by applying strict standards to the mortgages they guarantee. Taking out insurance also brings the risk weighting that regulators apply to these mortgages down to zero, which means that the banks derive no capital advantage from funding them through securitisation. Some argue that Freddie Mac and Fannie Mae, America’s housing-finance giants, should likewise guarantee mortgages but not buy them.