Borrower-Friendly Mortgages and Mortgage Interest Deductibility:Two Key Differences

Harry Koza, from the Altantic Institute for Market Studies, does everyone a great service by summarizing the two major differences between US and Canadian borrowing/financial system.

Mr. Krugman states that Canada’s advantage has been in being stricter about limiting bank leverage, and that’s true. But he then blames Reagan-era deregulation for the “dangerously interesting” US banking system and suggests that the wild American banking mustangs must thus be broken to the regulatory bit.

The thing is, in his Keynesian enthusiasm, he is neglecting the most important qualities of the Canadian financial system, the things that really made the difference and account for the fact that we didn’t have a US-style housing collapse and have to bail out our entire banking system. The stuff he cites in his column is all correct, as far as it goes, but it’s just the feathers, not the chicken.

The first major difference between the US and Canada that Mr. Krugman neglects is that we do not have the perverse government-spawned incentive of mortgage interest deductibility.

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The second big difference in Canada that Mr. Krugman neglects to consider is that our mortgage law is far more lender-friendly than that in the US, where it is far more borrower- friendly. We don’t have no-recourse loans where you can just mail in the keys on your underwater mortgage and walk away. And, more importantly, our lenders can much more easily act on their collateral.