A study issued by the UN Economic Commission for Europe compared German, US, and Danish mortgage systems. The German Bausparkassen have reported nominal interest rates of approximately 6 per cent per annum in the last 40 years (as of 2004). German Bausparkassen (savings and loans associations) are not identical with banks that give mortgages. In addition, they charge administration and service fees (about 1.5 per cent of the loan amount). However, in the United States, the average interest rates for fixed-rate mortgages in the housing market started in the tens and twenties in the 1980s and have (as of 2004) reached about 6 per cent per annum. However, gross borrowing costs are substantially higher than the nominal interest rate and amounted for the last 30 years to 10.46 per cent. In Denmark, similar to the United States mortgage market, interest rates have fallen to 6 per cent per annum. A risk and administration fee amounts to 0.5 per cent of the outstanding debt. In addition, an acquisition fee is charged which amounts to one per cent of the principal.[13]
United States
The mortgage industry of the United States is a major financial sector. The federal government created several programs, or government sponsored entities, to foster mortgage lending, construction and encourage home ownership. These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac).
The US mortgage sector has been the center of major financial crises over the last century. Unsound lending practices resulted in the National Mortgage Crisis of the 1930s, the savings and loan crisis of the 1980s and 1990s and the subprime mortgage crisis of 2007 which led to the 2010 foreclosure crisis.
In the United States, the mortgage loan involves two separate documents: the mortgage note (a promissory note) and the security interest evidenced by the "mortgage" document; generally, the two are assigned together, but if they are split traditionally the holder of the note and not the mortgage has the right to foreclose.[14] For example, Fannie Mae promulgates a standard form contract Multistate Fixed-Rate Note 3200[15] and also separate security instrument mortgage forms which vary by state.[16]
Canada
In Canada, the Canada Mortgage and Housing Corporation (CMHC) is the country's national housing agency, providing mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research to Canadians.[17] It was created by the federal government in 1946 to address the country's post-war housing shortage, and to help Canadians achieve their homeownership goals.
The most common mortgage in Canada is the five-year fixed-rate closed mortgage, as opposed to the U.S. where the most common type is the 30-year fixed-rate open mortgage.[18] Throughout the financial crisis and the ensuing recession, Canada's mortgage market continued to function well, partly due to the residential mortgage market's policy framework, which includes an effective regulatory and supervisory regime that applies to most lenders. Since the crisis, however, the low interest rate environment that has arisen has contributed to a significant increase in mortgage debt in the country.[19]
In April 2014, the Office of the Superintendent of Financial Institutions (OSFI) released guidelines for mortgage insurance providers aimed at tightening standards around underwriting and risk management. In a statement, the OSFI has stated that the guideline will "provide clarity about best practices in respect of residential mortgage insurance underwriting, which contribute to a stable financial system." This comes after several years of federal government scrutiny over the CMHC, with former Finance Minister Jim Flaherty musing publicly as far back as 2012 about privatizing the Crown corporation.[20]
In an attempt to cool down the real estate prices in Canada, Ottawa introduced a mortgage stress test effective 17 October 2016.[21] Under the stress test, every home buyer who wants to get a mortgage from any federally regulated lender should undergo a test in which the borrower's affordability is judged based on a rate that is not lower than a stress rate set by the Bank of Canada. For high-ratio mortgage (loan to value of more than 80%), which is insured by Canada Mortgage and Housing Corporation, the rate is the maximum of the stress test rate and the current target rate. However, for uninsured mortgage, the rate is the maximum of the stress test rate and the target interest rate plus 2%.[22] This stress test has lowered the maximum mortgage approved amount for all borrowers in Canada.
The stress-test rate consistently increased until its peak of 5.34% in May 2018 and it was not changed until July 2019 in which for the first time in three years it decreased to 5.19%.[23] This decision may reflect the push-back from the real-estate industry[24] as well as the introduction of the first-time home buyer incentive program (FTHBI) by the Canadian government in the 2019 Canadian federal budget. Because of all the criticisms from real estate industry, Canada finance minister Bill Morneau ordered to review and consider changes to the mortgage stress test in December 2019.[25]
United Kingdom
The mortgage industry of the United Kingdom has traditionally been dominated by building societies, but from the 1970s the share of the new mortgage loans market held by building societies has declined substantially. Between 1977 and 1987, the share fell from 96% to 66% while that of banks and other institutions rose from 3% to 36%. There are currently over 200 significant separate financial organizations supplying mortgage loans to house buyers in Britain. The major lenders include building societies, banks, specialized mortgage corporations, insurance companies, and pension funds.
In the UK variable-rate mortgages are more common than in the United States.[26][27] This is in part because mortgage loan financing relies less on fixed income securitized assets (such as mortgage-backed securities) than in the United States, Denmark, and Germany, and more on retail savings deposits like Australia and Spain.[26][27] Thus, lenders prefer variable-rate mortgages to fixed rate ones and whole-of-term fixed rate mortgages are generally not available. Nevertheless, in recent years fixing the rate of the mortgage for short periods has become popular and the initial two, three, five and, occasionally, ten years of a mortgage can be fixed.[28] From 2007 to the beginning of 2013 between 50% and 83% of new mortgages had initial periods fixed in this way.[29]
Home ownership rates are comparable to the United States, but overall default rates are lower.[26] Prepayment penalties during a fixed rate period are common, whilst the United States has discouraged their use.[26] Like other European countries and the rest of the world, but unlike most of the United States, mortgages loans are usually not nonrecourse debt, meaning debtors are liable for any loan deficiencies after foreclosure.[26][30]
The customer-facing aspects of the residential mortgage sector are regulated by the Financial Conduct Authority (FCA), and lenders' financial probity is overseen by a separate regulator, the Prudential Regulation Authority (PRA) which is part of the Bank of England. The FCA and PRA were established in 2013 with the aim of responding to criticism of regulatory failings highlighted by the financial crisis of 2007–2008 and its aftermath.[
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