Earnings & Dividend Growth Presentation
HOUSING MARKET STRUCTURAL DIFFERENCES vs U.S.
Canada's housing market features distinct practices and policies
Regulation and taxation
Product
Underwriting
Canada
Mortgage interest not tax deductible
Full recourse against borrowers in most provinces (in all of
Saskatchewan and for low-ratio mortgages in Alberta,
recourse is only to the value of property)
Ability to foreclose on non-performing mortgages with no stay
periods. Mandatory default insurance for any mortgage with
Loan-to-Value >80%
O CMHC insurance backed by the government of Canada
(AAA). Private insurers are 90% government backed
o Insurance available for homes up to $1 million
Premium is payable upfront by the customer
О
o Covers full amount for life of mortgage
Homebuyers must qualify for mortgage insurance at an
interest rate that is the greater of their contract mortgage
rate or the Bank of Canada's conventional five-year fixed
posted rate
Re-financing cap of 80% on non-insured mortgages
Maximum 25-year amortization on mortgages with LTV > 80%
Maximum 30-year amortization on conventional
(LTV 80%) mortgages
Down payment of > 20% required for non-owner
occupied properties
Conservative product offerings, fixed or variable rate options
• Much less reliance upon securitization and wholesale funding
Asset-backed securities not subjected to US-style off-balance
sheet leverage via special purpose vehicles
Terms usually 3 or 5 years, renewable at maturity
• Extensive documentation and strong standards
U.S.
• Tax-deductible mortgage
interest creates incentive to
borrow and delay repayment
•
Lenders have limited recourse
in most states
90-day to 1-year stay
period to foreclose on
non-performing mortgages
• No regulatory LTV limit
Private insurers are not
government backed
Can include exotic products
(adjustable rate mortgages,
interest only)
30-year term most common
• Wide range of documentation
and underwriting requirements
Scotiabank 56View entire presentation