Will CRA involvement reduce mortgage fraud?

The Canada Mortgage and Housing Corporation is petitioning the Canada Revenue Agency to take a more active role in detecting fraud, but is its concern overblown?

By Neil Sharma

13 Aug. 2018

The Canada Mortgage and Housing Corporation is petitioning the Canada Revenue Agency to take a more active role in detecting fraud, but is its concern overblown?

“If, for instance, you committed fraud and said you make $200,000 when you, in fact, make $30,000 and you qualify for an $800,000 mortgage, you would have defaulted by now,” said Laura Martin, Matrix Mortgage Global’s chief operations officer. “Toronto and Vancouver have some of the lowest default rates in the country at 1% and 1.5%, respectively, compared to the 2.2% Average in the U.S. during the 2008 Crisis.”

Added Daniel Johanis, a Rock Capital Investments broker:

“I would say that there’s definitely a direct correlation with the default rates in larger metropolitan areas and fraud. If we’re seeing lower default rates in Toronto and Vancouver, it’s pretty safe to assume the majority of people who are attaining mortgage insurance are able to meet those obligations.”

However, in a report, CMHC determined prospective homebuyers inflate their reported incomes far more often than they do with the CRA. But the report could not deduce how much fraudulent statements affect mortgage default rates.

Moreover, CMHC believes notice of assessments copies—which can be printed from the CRA’s website—can be easily falsified. While calling employers is perhaps the most accurate way of determining an applicant’s true income, NOAs are more popular and an accepted federal underwriting guideline.

Martin notes that discontinuing its use isn’t so simple.

“The fact that the NOA can be falsified is true, and securely sharing the income between the CRA and lenders would be a clear benefit in that it’s in line with global standards and best practices,” she said. “However, this will not solve the overstating of income issue, in terms of stated income programs existing. They’re using NOAs and T1s plus accounting statements and business contracts, and then the declaration. These stated income programs need to exist because over one in six people are self-employed.”

Martin also maintains that if somebody wants to commit fraud, they will irrespective of preventative measures.

“People who are determined to commit fraud will still do so with account statements,” she said. “Furthermore, CMHC’s reasoning is circular and weak; by its own admission there’s low fraud frequency, but their fraud detection ability is also low because of the complexity that’s arisen. There’s more technology now and fraudsters are getting smarter, so it’s hard to stay ahead of them.”