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Canada, 23rd September: Banks in Canada have emerged to be big players since they provide nearly 60 percent of loans for homes in Canada.
So, it’s the big banks in Canada who have the final jurisdiction for not just determining the amount of home loans to be provided to those looking to buy a house in Canada but also to see who can become a buyer of house in Canada.
No wonder, mortgage loans have proved to be a big deal for almost all the major banks in Canada. And there are plenty of reasons behind it.
Banks in Canada enjoy key role in deciding the exact amount to be charged from customers. But this is not so in the United States where banks face tough competition at the hands of several money lenders.
Mortgage finance in Canada is constrained in the hands of banks and a few credit unions. And those who don’t get home loans from banks in Canada move to credit unions for getting finance.
Since the mortgage risk is covered by CMHC (Canada Mortgage Housing Corp.), banks are ready to provide loans even when the element of risk is significantly high.
And in case of any default in the repayment of home loans by borrowers, the burden falls on the taxpayer in Canada. The main motive, nonetheless, is to encourage people at the lower income groups to go for affordable mortgage finance.
According to an analyst with National Bank Financial, Peter Routledge, the risky mortgages in Canada are guaranteed by the system. And the fact is that banks in Canada do not extend the support received by the government on to their customers.
The Canada Mortgage Bonds market has gone up from less than $10 billion (in the year 2001) to around $300 billion today.
The global economic slowdown witnessed an almost near collapse in the global banking system with the only exception being the banking system of Canada.
So, what helped the banks in Canada survive during the financial slowdown? Well, it has been the securitization market that helped banks and the Canadian government survive and proving to be vital liquidity source that was missing from the international banking system.
However, the sad part is that cheap finance offered to potential home buyers in Canada has resulted in taking the Canadian consumer debt to record high levels and this has made Canadians extremely vulnerable to economic shocks in the times to come.
Nonetheless, the experts assert that the present system is, undoubtedly, heading for the right direction following several amendments in the mortgage conditions introduced by Canadian government recently.