The Canadian residential mortgage market has been "boring, but effective" in recent years, according to International Monetary Fund economist John Kiff.
In a report released by the IMF - and referenced by the Globe and Mail yesterday - Kiff examines numerous nuances of the Canadian and American mortgage lending markets and concludes the two have noteworthy differences but remain competitive when it comes to rates and products.
"It's not hard to conclude that Canadian fixed-term rates on prime mortgage loans are quite competitive with their U.S. counterparts," he said.
One distinction noted in the report was that in Canada, the amount of mortgage-originating depository institutions has "increased significantly" while in the U.S., the deposit-taking institution share of residential mortgage loan holdings has dropped 75 per cent over the past 40 years. Kiff also pointed out Canada's percentage of securitized loans is less than half of the U.S.'s 60 per cent securitization rate.
In explaining why the U.S. foreclosure rate has gone up while the Canadian rate has not, the report said Canada's policy on mortgage insurance means that the full amount of the loan is covered as opposed to the U.S., where mortgage insurance only covers losses that exceed the LTV ceiling. Canadian lenders also have recourse to all the borrower's assets and income if their loan goes to foreclosure, whereas in the U.S., similar action is too expensive, impractical or legally impossible.
Another stabilizing factor for Canada, Kiff noted, was the option for borrowers to pick between weekly, biweekly, semimonthly, or monthly payment schedules, which he said have helped keep Canadian mortgage delinquency rates in check.
- Nick Lypaczewski