How mortgage fraud is fueling Canada’s hot real estate market

How mortgage fraud is fueling Canada’s hot real estate market

Mortgage fraud remains a controversial issue between brokerage firms, banks, and consumers looking to buy homes. Why mortgage fraud impacts the fragile nature of Canada’s market is because financial institutions continue to make high-value mortgages. These mortgages are being made available to those who cannot afford them — either by hook or crook.

 

The threat of defaulting house loans potentially leaves a concerning number of Canadian home buyers vulnerable. Mostly those who’ve invested in property with down payments valued less than 20%.

 

This leaves the average Canadian taxpayer at risk if a mortgage borrower defaults on a CMHC-insured loan. Regulatory bodies such as the Office of the Superintendent of Financial Institutions are warning lenders to examine submissions provided by independent and group brokerages more closely.

 

Doing so mostly involves reviewing a client’s income statements, employment letters, or other means to assess proof-of-employment. Performing thorough due diligence comes with additional administrative and processing costs to the consumer. Even if doing so offers lenders and financial institutions a sense of capital security.

 

Completing due diligence may mean lenders will start screening applicants more rigorously. This will allow them to achieve a reduction in received falsified or forged documents. Additionally such actions will mean that lenders can take a lower risk on lost profits.

 

In Canada’s scalding-hot real estate market, measures taken by both private and public insurers of mortgage financing may be both a boon and bane for consumers looking to gain an affordable loan. Some buyers have to save a higher down payment, saving more money may decrease a bank’s caution to decline offering a mortgage. In the process, buyers who can afford to put down more are at an advantage.

 

On the other hand, banks and other financing bodies have had to take on a greater share of capital. This lightens the burden and risk on taxpayers should loans go in default.

 

With all these new measures and more being implemented within the months and years to come, does requiring higher down payments and increased private sector capital totally eliminate the risk of mortgage fraud occurring?

 

If we compare the circumstances of the 2008 subprime mortgage fiasco-turned-crash stateside to what is currently influencing Toronto’s house fever as a history lesson, then probably not.

 

But it’s a start.

 

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A Maryland native and Toronto-area transplant/graduate of the University of Toronto, Christine is a content writer at Loanerr. When not writing articles, she's an avid swimmer, cat lover, violinist in a indie band, and a humble food aficionada.