While Canada’s real-estate market is expected to cool this year, some home buyers could find themselves in hot water if a disturbing trend continues: People are apparently telling “little white lies” on their mortgage applications.
According to a new survey by Equifax Canada, 13 percent of Canadians said they felt it was okay to fib when applying for a mortgage to get the house they want.
With “falsified” documents and statements along with “conflicting information” being the most common tags used by investigators, there has been a 52-percent increase in suspected fraudulent mortgage applications since 2013.
Examples of the untruths people are unleashing include embellishing sales commissions or self-employment income or citing a past bonus, all just to get a bigger mortgage, according to Tara Zecevic, vice president of customer insight at Equifax Canada.
“What if something unforeseen happens or interest rates rise? Suddenly people’s situation could be very different,” Zecevic says.
There’s more: Sixteen percent of those surveyed said they believe mortgage fraud is a “victimless” crime.
“They think it’s okay, because they think ‘I’m not really hurting anybody; I think I can afford a larger payment,’” Zecevic says. “They’re not thinking through that they’re entering a contractual obligation.”
They may need a reminder that such a breach of contractual obligations with a lender is also against the law.
Of the mortgage applications flagged, 67 percent were in Ontario, while 12 percent (the next highest level) were in B.C.
One in five people surveyed said they’re worried that they will never own their own home because of high prices. There are other potential consequences aside from the legal implications.
“We see a lot of bidding wars, which is a very stressful situation for consumers,” Zecevic says. “But the ramifications [of lying on a mortgage application] include situation where ‘I’m in over my head, it’s causing me stress, it’s impacting my health, and I could be declaring bankruptcy.’”
Mary Poburan, senior mortgage specialist at Edmonton’s Calibre Mortgage, says that in her experience, the term “lying” may be too harsh; oftentimes, what ends up on an application results from mere omission or even forgetfulness or ignorance.
“There are times when clients initially overestimate their income, in situations where they’re not employed in hourly or salaried positions,” Poburan says. “They may be contractors or self-employed, state a certain income, and then will later say ‘I technically earn this much, but I don’t declare it.’ It’s not necessarily intentionally dishonest as opposed to not understanding the system.”
If people do misstate their income, whether intentionally or inadvertently, they’re not likely to get away with it. For starters, lenders require at least two pieces of income confirmation, such as a pay stub and letter of employment.
“Employment letters are always verified,” Poburan says. “Lenders are also doing things like Google searches to verify whoever has penned the letter is in the appropriate position. Some lenders will take another step and phone the person signing the employment letter to make sure the company exists and the information contained on the employment letter is correct. Those letters are substantiated.”
Rather than bend the truth, aspiring home buyers need to honestly assess their circumstances.
“You have to think about what’s realistic,” Zecevic says. “What’s affordable? Maybe consider renting a little bit longer and building up your down payment. Should you consider a longer commute? Reconsider what you’re looking for in a home. How much debt is reasonable?”
The Equifax survey also looked at issues of trust in the home-buying experience and found that only nine percent of Canadians said they trust all of the professionals involved. Forty-four percent of Canadians trust real estate agents the least during the home-buying experience, while another 20 percent distrust mortgage brokers, 16 percent don’t trust their bank, and 16 percent have little trust in their insurance agent.