AWASH IN A SEA OF DEBT - Maclean’s Feb.8th issue.

Canadians used to take pride in their higher savings rate, compared to the Americans. Not anymore.

It seems we have learned nothing from the American debt crisis; and here in Ontario, we have forgotten the housing collapse of the early 1980’s, when house prices dropped as much as 40 % and did not recover their old values until after the turn of the century. Speculation was rife; people kept moving up, sometimes changing homes every one or two years; speculators were “flipping” homes, and ordinary people were buying forward several months and expecting their old home to appreciate before putting it up for sale. It worked for a while, but then the market turned, and some people who had committed to a new home and waiting to sell their own at higher prices had to sell much lower and ending up with a new house but a much larger mortgage. Some seniors, selling their old, large home and hoping to move into a new, smaller home, mortgage free, ended up with a smaller home with a large mortgage. Quit claims were rampant.

Now, here we go again. Every day one can hear on the radio or see on TV finance companies advertise easy money: “you can qualify for a loan even if you have no job, or are self employed; have a paid for car not too old; or some equity in your home, even if you are a bankrupt”! This kind of advertising, preying on the poor or desperate, or just foolish, should be made illegal. It’s this kind of behaviour that got our American neighbours in serious trouble, and we are now going down the same road.

Your article references Denmark (also true of Norway and Sweden) where household carry twice the debt to income burden. This is true, but leaves out a couple of factors: mortgages are generously tax deductible, and it is advantageous in a high tax regime to carry a large mortgage; especially amongst higher income earners. Also, in comparison, the Scandinavian countries have much more generous income support policies for people losing their jobs or become unable to work because of illness, etc. Employment insurance benefits, as much as 90 % of wages, can last up to five years. This makes mortgage debt less risky. However, there also, they have been encouraged by the steady appreciation of house values over time.

Even the marketing of “reverse mortgages” to the elderly –while perhaps legitimate and useful in some circumstances –should be regulated better. These people, who prey on the elderly, or the unfortunate, are nothing but financial parasites and should be “exterminated”.