The confluence of exorbitant housing prices and the incoming mortgage stress test could encourage some Canadians to misrepresent their earnings on mortgage applications, warns a broker.
“I do foresee instances of fraud for shelter becoming more prevalent because the market has heated up so much that housing is out of grasp for a lot of people,” said Leah Zlatkin, principal broker at Brite Mortgage and an expert with LowestRates.ca. “A lot of first-time buyers are trying to size out of their condo and into a home, but that home might feel out of reach. They might have saved up 20% for a home, but with the Office of the Superintendent of Financial Institution’s new mortgage rule on June 1 and housing prices continuing to go up, some people might not be able to get their dream home or even just the house they want.”
In fact, according to a recent Equifax survey, 9% of respondents admitted they weren’t fully truthful on their mortgage applications, while 16% of millennials and 9% of the general population thought falsifying information was acceptable—although that declined from 23% and 12%, respectively, in 2019.
“Millennials are more comfortable with mortgage fraud and they think it’s not a big deal,” said Zlatkin. “When you look at people trying to buy homes, namely millennials, I do feel like we’ll have instances where people fudge the numbers. The mentality some people have is if they know they can afford the mortgage payments, they fudge the lines a bit so they can get the extra $20,000, $30,000 they need.”
She added that things could get hairy should interest rates rise or if unplanned expenses crop up, and especially in the case of job loss.
Nevertheless, lenders have stringent checks and balances in place to catch attempted shelter fraud, says mortgage broker Frances Hinojosa.
“I do understand through talking to our lender partners that they have seen an increase of income fraud for fraud for shelter,” said the managing partner of Tribe Financial. “It’s not that clients can’t pay the mortgages, but they’re trying to get into the market by fudging documents with inflated incomes. Lenders are all hyperaware of this, and now they’re getting closer and closer to requesting borrowers’ bank statements directly from their institutions to confirm income deposits to make sure the numbers line up. So if there is an increase in this type of fraud, it will just push lenders to snuff it out.”