Mortgage applicant masking true identity

All You Need To Know About Mortgage Fraud

Mortgage Fraud is the act of misrepresenting or omitting material information on a mortgage application to get a larger mortgage loan. Equifax indicates that there is a rise in high-risk and suspected fraudulent mortgage activity. They note a 52% increase in suspected fraudulent mortgage applications since 2013.

Lenders are seeing more and more Falsified Bank Account Statements’ and ‘Falsified Income Documents’. These were also were the most prominent application flags that was reported by Equifax. The two provinces that were flagged the most were Ontario, with 67% and B.C. with 12%.

The fear of missing out

Due to higher property values coupled with recent changes in borrowing rules,  home buyers think the dream of home ownership is harder. This could be a factor in the spike in mortgage fraud. Mortgage rules mandates that borrower with less than a 20% down payment qualify for a mortgage at rate of 5.34% and a 25-year amortization. If a borrower is putting 20% or more down they must qualify at the contract rate plus 2%.

A recent survey indicates that one-in-five Canadians, who do not have a mortgage, indicated they are nervous they will never own a home because of rising prices and want to buy a home but can’t because of the down payment or income.

In a 2017 report Equifax stated that:

  • 13 percent of Canadians indicated they felt it was okay to tell ‘a little white lie’ when applying for a mortgage to get the house they want.
  • 16 percent said they believe mortgage fraud is a victimless crime
  • 8 percent admitted to misrepresenting the facts on a credit or loan application

You may be committing mortgage fraud if:

  • Creating, altering or falsifying pay stubs, letters of employment and other documents;
  • Giving misleading or inflated information about your income or length of service in your job;
  • Misrepresenting your job status: full/part-time, hourly/salaried, commission-based or self-employed;
  • Backdating letters of employment;
  • Not disclosing all existing debts;
  • Misrepresenting or omitting details of the property in order to inflate the property value; and
  • Lying about the purpose of the property (e.g. listing it as your primary residence when it’s intended for rental purposes).

Canada Mortgage and Housing Corporation (CMHC) conducted a research and compared incomes reported on mortgage applications to incomes reported with Canada Revenue Agency. They found that mortgage incomes are systematically higher than incomes reported to the CRA.

A buyer using fictitious documents to qualify for a mortgage in one thing, buying a property and becoming house poor is another. Without proper budgeting and understanding of the true cost of owning a home could make homeownership difficult. If you had to fudge the numbers to qualify you probably didn’t take all the other expenses into account. CMHC found that increases in house prices were linked to an increase in the incidence of “possible income misstatement.” They also found a correlation between this sort of fraud and higher default rates on mortgages and foreclosures.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Please fill in the required fields.

  • Date Format: MM slash DD slash YYYY