BY: JAY BRIJPAUL
Canada Mortgage and Housing Agency (CMHC) is seeking help from the Canada Revenue Agency (CRA) in hopes of catching mortgage fraud. Mortgage fraud is when someone provides false information so that they can qualify for a mortgage that they would not have qualified for under normal circumstances. It is estimated that since 2013, there has been a 52% spike in mortgage fraud where buyers over-inflate their income to get qualified.
CRA is currently reviewing ways in which it can assist financial institutions with income verification upon obtaining the client’s consent. Higher home prices along with new regulations and increased interest rates provide an enticement to individuals or their representatives to falsify documents. This may include job letters, pay stubs and even the CRA notice of assessments which can be obtained from their website and easily falsified. The lending rules are designed to protect buyers from over-borrowing and cannot afford to keep up with their monthly payments. With buyers qualifying for less, there is a downward pressure on house prices and homeownership will become affordable.
Mortgage fraud can be as simple as misstating the length of one’s employment or stating that someone is a salaried employee when they are not. There are many instances where someone uses another person’s credit to purchase a home. This is known as a “straw buyer” and is considered as mortgage fraud as well. In the event of default, the straw buyer is liable for the shortfall and can be held criminally responsible.
Some other areas of concern are the source and the amount of down-payment. Buying an investment property and claiming it as one that would be owner-occupied is also considered as mortgage fraud. Adding a buyer’s name while knowing that the buyer will not be the one paying the mortgage is considered as being fraudulent.
CMHC has upgraded their fraud detection system and has implemented new software through Equifax that flags high-risk mortgages. Their underwriters work closely with fraud prevention officers to ensure that the buyer’s information is correct. They cross-check documents such as credit reports, bank accounts and tax information to check if the employment information reported on the application is different. CMHC is warlike when fraud is detected and goes to all extents to discourage it.
There are ways to protect yourself from mortgage fraud. When applying for a mortgage, tell the truth. Ask the mortgage broker to print a copy of your application and review it. It is best to avoid using brokers who promise to get you the mortgage despite your credit history or job. They may be falsifying your information and colluding with bank insiders who are being paid off to approve the mortgage. As a seller, if a buyer requests that you increase the purchase price of the home and claims that the increase is part of his down payment so that he can get the mortgage, then that is considered as mortgage fraud and can land you into trouble. Buyers should also be careful when they are buying a home where the seller offers to artificially create a down-payment.
Sometimes we unknowingly commit mortgage fraud by adding our names to help someone qualify. If we are not paying the mortgage, we should disclose that information to the bank. Avoid buying or selling homes privately and know who you are dealing with. Buyers should avoid giving their deposit money directly to sellers. It should be kept in a real estate company or lawyer’s trust account. If you are buying a property, check the sales history and always get the property inspected and appraised before removing sales conditions.
The promise of getting “easy money” in real estate is tempting but if you hide, shave or bend the truth, then you can be an accomplice to mortgage fraud. Protect yourself and avoid signing for others. Row your own boat gently down the stream.
