Mortgage fraud drive faces pushback
August 28, 2018
Canada Mortgage and Housing Corp. (CMHC) is considering calling in the Canada Revenue Agency (CRA) in a bid to battle mortgage fraud. The campaign is either overkill or inevitable according to mortgage industry sources.
CMHC”s focus concerns income verification of mortgage applicants, which it apparently thinks is a big problem. “The industry’s current detection tools have not kept pace with the increasing sophistication of threat we face,” a CMHC statement reads.
According to an Equifax study last year, there has been a 53 per cent increase in mortgage fraud since 2013. A survey by the debt-rating firm also found that that 13 per cent of Canadians would be comfortable fudging a mortgage application.
With tighter mortgage restrictions today, it could be more tempting for mortgage applicants to lie—including inflating their income. For years some lenders required only a signed stated income form, which was especially popular with the self-employed and contract workers who often lacked conventional payment stubs.
Under the CMHC-CRA proposal, income would be verified by giving lenders direct access to Canada Revenue data on a potential borrower.
Not everyone is on board with the idea, some noting that the mortgage delinquency rate has fallen to near-record lows, even as housing prices have risen and mortgage fraud is feared.
Rena Malkah, owner of CYR Funding of Thornhill, Ontario, a mortgage broker for 44 years, thinks income verification is an issue best left to underwriters.
“Their job is to verify the claims. If they can’t they should be fired and replaced by someone who can,” she told Canadian Mortgage Trends. Malkah argues that credit rating is more important than income verification. “If someone has a high credit rating, it shouldn’t matter what their income is. If they fight and scrap for under-the-table money to pay their bills on time, then it should be of no interest to the insurance company where the money comes from.”
Other brokers, however, believe CRA involvement is inevitable.
“Mortgage fraud is right up there near the top of the list of things to crack down on. In the United States one of the online lenders can access your tax returns as soon as you fill out a mobile app – this allows them to grant a mortgage approval in seconds. It only makes sense that CMHC should be able to do the same thing up here. I can definitely see that happening and it would definitely cut down on mortgage fraud when it comes to income verification,” said Peter Kinch, vice-president, mortgage agent and investment advisor with Vine Group, part of Mortgage Alliance in Vancouver.