With house prices rising sharply in some Canadian cities, the pressure on homebuyers to get into the market has grown intense. We are a homeowner society, after all, and for many people, a house or condo is the ultimate status symbol.
But with housing moving out of affordability range in Toronto, Vancouver and nearby cities, some buyers are taking dubious shortcuts.
A 2017 survey from credit rating agency Equifax found 13 per cent of Canadians say it's OK to tell a little lie on your mortgage application. Fully 16 per cent believed mortgage fraud is a "victimless crime." (Just to be clear: Lying on a mortgage application is, in fact, a crime.)
Watch: Surprising number of Canadians lie on mortgage applications
And plenty of people are acting on this ethos. Equifax found a 52-per-cent spike in what they term "suspicious mortgages" between 2013 and 2016. The vast majority of the increase happened in the provinces with the priciest markets — Ontario, with two-thirds of all suspicious mortgages, and British Columbia, with 12 per cent.
To get a sense of just how big this problem is, researchers at Canada Mortgage and Housing Corp. compared incomes reported on mortgage applications to incomes reported with Canada Revenue Agency, and found that mortgage incomes are systematically higher than incomes reported to CRA, according to a report at the Financial Post.
The researchers found that increases in house prices were linked to an increase in the incidence of "possible income misstatement." They also found a correlation between this sort of fraud and higher default rates on mortgages.
And that's the rub: Mortgage fraud is dangerous to our economy, especially in our current era when so much of Canada's economy is dependent on the long-running housing boom.
If something happens to slow the economy and many households stop paying mortgages, banks will suffer losses and will cut back on lending. That will reduce the amount of money available with which to buy homes, and the whole thing collapses like a house of cards (see: U.S. housing bubble, circa 2008).
Well, now the CMHC wants to do something about it. According to documents obtained by Reuters, the federal housing agency has asked the CRA to take a "more direct and formal role" in verifying incomes.
Unlike in the U.S. and U.K., Reuters noted, Canada's tax agency doesn't confirm incomes of mortgage applicants, even if applicants agree to it. The CRA told the news agency it's now "exploring different avenues" for securely sharing income data with lenders.
If these government agencies come through, lying on your mortgage could become a bit more difficult. Which is a very good thing.
For years in Canada, we patted ourselves on the back for avoiding the U.S.'s housing bust of the last decade. We reminded ourselves constantly that our lending is more responsible than U.S. lending.
But in the wake of the U.S. housing bust, lenders there pulled back and tightened their standards. In Canada, in the intervening years, we've done the opposite. Subprime loans — the riskiest kind — have seen an explosion on this side of the border.
No wonder the Bank for International Settlements has repeatedly named our country as a top candidate for a banking crisis. No wonder CMHC wants tighter verification of incomes on mortgages.
If this overpriced housing market comes crashing down one day because too many borrowers couldn't make their payments, mortgage fraud will prove to be far from a victimless crime. We will all feel that pain.