Housing affordability challenges leading to increased risk of fraud

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With higher prices and interest rates putting the dream of homeownership further out of reach, studies suggest Canadians are more comfortable inflating certain details of their mortgage application — a form of fraud that could have serious legal ramifications.

According to a recent survey conducted by Mortgage Professionals Canada (MPC), a third of non-homeowners don’t think they will ever be able to purchase a primary residence. That’s up from 25% just six months prior, as well as 18% at the end of 2021, and represents a new record high.

The survey also found that a majority of Canadians are worried about their finances in the next six months, with 60% now feeling the pressures of inflation, up from 40% just six months prior. Furthermore, 14% of first-time homebuyers report having difficulties making their payments.

“In the context of this heightened interest rate environment, coupled with persistent inflation, it creates the risk conditions of further pushing average Canadians out of the federally regulated system and into riskier and more costly mortgage solutions,” said Lauren van den Berg, President and CEO of MPC. “It also increases the risk of mortgage fraud.”

According to a recent survey conducted by Leger for BNN Bloomberg, nearly half of respondents think mortgage fraud is common in Canada; 17% believe it’s acceptable to inflate one’s income and 18% believe it’s acceptable to misrepresent your employment in order to secure a mortgage. Those numbers surpass 30% among Canadians aged 18-34, and those who live in the country’s most expensive real estate markets.

A similar study conducted by Equifax Canada found that 13% believe it’s okay to lie in order to get the house you want, with 16% seeing it as a victimless crime. The credit bureau also noted a 52% increase in suspected fraudulent mortgage applications since 2013.

Depending on the circumstances, the punishment for those charged with mortgage fraud ranges from a negative mark on their personal credit report to serious jail time; up to 14 years for those who are charged with fraud over $5,000.

“Considering the increased risks, there is an important role for the mortgage industry to combat fraud,” said van den Berg. “There are ways for homebuyers to protect themselves from bad actors and granting mortgage professionals the capacity for CRA-enabled income verification is key to helping prevent fraud.”

MPC welcomes new regulatory measures against fraud

MPC is in favour of greater regulatory measures to crack down on money laundering and fraud, van den Berg adds, and is also seeking to better equip mortgage professionals with the tools they need to aid in that effort. Specifically, she points to income and identity verification as a critical tool to catch and prevent mortgage fraud, which is why MPC has formally requested the federal and provincial governments grant income verification to the mortgage industry.

“We are encouraged that the CRA has already been engaged on validation options such as a simple yes or no validation of Line 15000 of a tax return,” she said. “This tool is a necessary solution required by our industry to help to reduce fraud across the housing sector.”

MPC also offers educational resources for mortgage professionals dedicated to fraud prevention, including some additional resources available on its website. That includes information brokers can pass on to consumers, such as the basics of ordering a credit report, how to report suspected fraud to the federal government and tips on how to guard against fraud while shopping for or closing on a home.

“Protecting against fraud is part of our job as mortgage professionals. With reports of mortgage fraud up, we continue to take this very seriously,” added van den Berg. “During this fraud prevention month, it can be an opportunity to brush up to best serve and educate yourselves and your clients.”

However, van den Berg also acknowledges the important role that addressing housing affordability challenges would have in reducing instances of mortgage fraud in Canada.

“We need to take action to help ease housing cost pressures Canadians are facing in the present moment,” she said. “With appropriate policies in place, the federal and provincial governments can help ensure the dream of homeownership remains available to all Canadians.”

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