Mortgage Fraud - No such thing as a white lie
Recent news reports have put a spotlight on mortgage fraud.
On January 11th, Equifax Canada released a report on mortgage fraud suggesting a 52% increase in suspected mortgage fraud activity since 2013. Examples of mortgage fraud include:
- Employment: Inflating your income and falsifying an employment letter or altering pay stubs.
- Down payment: Telling a lender your down payment is from savings or a gift, when it is a credit card cash advance or a loan from a friend or family member.
- Purpose: Purchasing a rental property and misrepresenting it as owner-occupied.
The Equifax survey showed:
- 13% of Canadians indicated they felt it was okay to tell 'a little white lie'
- 16% said they believe mortgage fraud is a victimless crime
- 8% admitted to misrepresenting the facts on a credit or loan application
On February 28th, the Financial Post reported that Laurentian Bank (also known as B2B Bank), who sold millions of dollars of mortgages to investors, may have to give investors a $392 million refund on mortgages that were identified as “problematic.” The mortgages were problematic because of “documentation issues and client misrepresentations,” which were uncovered.
Ratings agency Standard & Poor’s said they expect more evidence of fraud in Canada’s mortgage industry could emerge and re-assessed Canadian Banks at a higher risk profile.
Mortgage Sandbox contacted Andrew Howard, a Senior Account Manager, with Canada Mortgage Housing Corporation (CMHC) to confirm what can happen to borrowers who commit fraud.
He said that every situation is different because there is a big difference between suspected misrepresentation versus proven fraud but it is possible:
- The mortgage default insurance is voided, leaving the lender with a "non-conforming" mortgage of unknown risk.
- The lender considers the misrepresentation a breach on contract and asks you to repay the mortgage in full.
- The borrower faces criminal charges and potentially jail time for mortgage fraud.
- The borrower loses their job for falsifying or altering official company employment documents.
The information and documents that a lender requests is intended to help them assess the risk of borrowers and the likelihood they can repay the mortgage. If you misrepresent the information or falsify documents, you will be taking on a riskier mortgage than the lender is comfortable providing. If it’s risky for them it means it’s risky for you. A home purchase is the most important financial commitment you’ll ever make, so don’t risk losing your home, your job, and criminal charges.
When it comes to mortgages, there’s no such thing as a white lie.
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