Canadian housing starts dropped 45% in the first half of 2009 but recovered quickly. May home price in Canada were up 8.5% from a year earlier. US housing starts fell 75% from the third quarter of 2005 to the first half of 2009. US home prices are approximately unchanged from a year ago.  The housing recession in Canada was later, milder and shorter than the US housing recession. In contrast to the US, Canada does not have a serious problem with underwater mortgages, high and rising foreclosures, bankrupt homebuilders or a large share of prospective homebuyers locked out of the mortgage market.

　　These are the significant features of the Canadian mortgage system that keep their housing recession short and mild:

　　The minimum down-payment in Canada is 5%. Very few homebuyers have so little equity that they will readily default when they lose their job.

　　Canadian mortgages are recourse loans with only a few exceptions.  Defaulters are sued to collect any loss incurred by lenders.

　　50% of Canadian mortgages have mortgage insurance; more than double the share in the US. Homebuyers must apply to an insurer, separate from the mortgage lender. Hence mortgages are less risky loans than in the US which attracts capital to the mortgage market.

　　70% of Canadian mortgages are held by the originators. Less than ten large banks dominate the mortgage market. Unlike US market dominated by fee based mortgage brokers, there is no incentive to approve a loan unlikely to be repaid and pass the inevitable loss onto someone else.

　　Mortgages can be securitized in Canada, financed by housing bonds, only if they are insured. Hence mortgage backed bonds are low risk investments.  The mortgage back bond market has survived in Canada while it collapsed in the US.

　　Canadian mortgage payments are made automatically from bank accounts.  This insures that the mortgage is paid first before other consumer expenditures.

　　Speculative home buying and home flipping is rare in Canada. Mortgage interest payments are not tax deductible. A large sales tax is imposed on home purchases.  The tax quadruples if the home is not owner occupied. Only owner occupied homes are exempt from capital gains taxes.

　　Canadian mortgages are not fully amortizing.  The typical term is five years. Homeowners have to constantly maintain a good credit score to be eligible for renewal.

　　We should adopt some of these features here.  But there are no signs that any of these ideas are being seriously considered in Washington or among the large mortgage originators or the federal mortgage lenders. Instead, the focus is on excusing those who failed to make their mortgage payments.