LowestRates.ca: Stricter qualification requirements could provoke more fraud

Multiple factors could feed into increased incidence of misrepresentations come borrowing time

LowestRates.ca: Stricter qualification requirements could provoke more fraud

Tighter borrowing requirements in Canada might lead to an increased incidence of mortgage fraud, according to Leah Zlatkin of LowestRates.ca.

With the Office of the Superintendent of Financial Institutions raising the qualifying rate for borrowers who have at least a 20% down payment from 4.79% to 5.25%, the new regulatory environment might become an excuse for some would-be borrowers to cheat a bit.

Misrepresentations might prove especially appealing among those refinancing from new lenders, Zlatkin warned.

“They may look at it as either they are stuck with their existing lender who has raised rates, or fudging the numbers to go elsewhere because they don’t qualify for the mortgage they used to,” Zlatkin told the Calgary Herald.

The silver lining is that the OSFI changes “will not be a big problem for buyers, unless it’s a mortgage over $1 million, which is uninsurable,” Zlatkin said.

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Intensifying demand could be another factor provoking mortgage fraud, particularly in markets playing host to bitter bidding wars.

“When you’re competing with others, many people will stretch themselves to the absolute limit to qualify,” Zlatkin said. “Then they risk being blacklisted and receiving no mortgage at all.”

Research by Equifax seems to bear out the phenomenon: The credit reporting agency’s survey earlier this year found that as much as 14% of Canadian millennials have lied on a previous credit or loan application, compared to the national average of 7%.

Around 16% of young adults and 9% of the general population also said that it’s acceptable to pad annual incomes come application time. Another 16% of millennials and 11% of the general population believe that mortgage fraud is a “victimless crime”, although 44% of consumers still think that they’ll end up paying for fraud with higher interest rates.