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Re: From Canada Madness: Bailing Out Greed in Wonderland
From: David Farber <dave () farber net>
Date: Wed, 17 Sep 2008 09:05:20 -0400



Begin forwarded message:

From: David Magda <dmagda () ee ryerson ca>
Date: September 17, 2008 7:54:14 AM EDT
To: dave () farber net
Cc: declan () well com
Subject: Re: [IP] Re:   Madness: Bailing Out Greed in Wonderland
Reply-To: David Magda <dmagda () ee ryerson ca>


On Sep 17, 2008, at 05:26, Declan McCullagh wrote:

Now, of course, Paul was proven right. And we have the bizarre spectacle of politicians who claim to be for "affordable housing" trying to prop up Fannie and Freddie. If F&F didn't exist (or existed in a substantially different, privatized form), the housing bubble would end more quickly, economic dislocations would be worked through more quickly, housing prices would normalize sooner, and homes would actually become more affordable.

For comparison, up here in Canada we have the CMHC which gives mortgage insurance to lending institutions:

http://en.wikipedia.org/wiki/Canada_Mortgage_and_Housing_Corporation

If an individual gets a mortgage, and does not have 20% of the purchase price as a down payment, the bank tells them they need to have mortgage insurance.

So if I take about out a 5.5% 5-year mortgage, but only can put 15% of the purchase price, I have to pay another 0.75% on top of the 5.5% as insurance premiums against defaulting. If I can only put down 10%, then the premium would go up to, say, 1.5% (on top of the 5.5%). If I had only 5% as a down payment, then it would be 2.2%. Currently if you don't have at least 5% as a down payment the CMHC won't insure the mortgage, and thus most lending institutions won't give you a mortgage. (The numbers may not be completely real, but I think you get the picture.) Also, I think you have the option of paying the premium in a lump sum, or as part of your monthly payments.

This encourages people to save up, but they are still able to get mortgages even if they don't have huge pots of money lying around. Note again that this is insurance to the lending institution. The individual customer who receives the mortgage can get insurance so that if they're incapacitated in any way they won't lose their home, but this is a separate product from what the CMHC does.

Personally I think it's a pretty good balance (of course prices are currently fairly high because of demand, but that's another story).





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