When it comes to mortgage applications, there’s no such thing as a little white lie.
Even for applicants who think they may only be fudging a trivial part of the application, such indiscretions are still considered fraud, and it can cost them.
A growing number of Canadians believe it’s justified to lie on a mortgage application. Nearly 1 in 4 (23%) of millennials think it’s acceptable to inflate annual income when applying for a mortgage, according to an Equifax survey last year. Of the entire population, 12% said they think inflating income is justified.
But “fudging” numbers on a mortgage application is fraud, Julie Kuzmic, director of consumer advocacy at Equifax Canada, said when the data was released. “It also becomes a slippery slope for those people who may end up stretching themselves too thin.
The issue of overstating income is less common for salaried employees (who must produce official paystubs) than it is among self-employed or commission-based borrowers.
This latter group often relies on “stated-income” applications where — to the uninitiated — there’s seemingly more room for shenanigans. Documentation may include business bank statements, commission statements, financial statements or other non-tax-related and non-government issued documents. The following are just a few of the many reasons why being dishonest when applying for a mortgage is a very bad idea:
Lenders are smarter than you think. The last thing a mortgage lender wants is to take back a house. Numerous precautions are taken when lending out hundreds of thousands of dollars. Lenders have a tremendous amount of experience in detecting mortgage application inconsistencies and potential misrepresentations. They expect a certain number of applications to involve fraudulent information, so they’re always trying to identify it.
Technology is on their side. Technology to detect potential fraud has come a long way in recent decades. It is much more efficient than humans alone at spotting inconsistencies and discrepancies. Some income verification is now connected directly to the federal government, with the Canada Revenue Agency continuing to work on digital solutions. The big banks, too, are coordinating their efforts thanks to the advent of data connectors like Flinks. In some cases, lenders are able to cross-reference your bank deposits directly (rather than relying on proof from you). That’s particularly helpful for verifying things like sources of down payment funds.
Long-term pain. Let’s say you’re unable to qualify using traditional income verification. Now suppose you decide to embellish your stated income in order to reach the income cut-off needed for approval. If you’re declined by the lender due to questionable income, you may have blown your chance at being approved for a mortgage at all, even if you are able to legitimately boost your income. If your efforts are crooked enough, you’ll end up in the industry’s fraud database. That could ruin your future chances with the majority of top lenders.
Legal consequences. Being convicted of fraud over $5,000 can deal a significant blow to you and your family’s reputation. It can also carry long jail terms. A conviction could carry a maximum prison term of up to 14 years. If convicted in fraud of more than $1 million, the Criminal Code of Canada then imposes a minimum jail sentence of two years.
Despite all of the above, that’s not to say mortgage fraud doesn’t exist.
In fact, it not only happens, but it’s happening more often—there was a 52% increase in fraudulent mortgage applicants from 2013 to 2017, according to Equifax.
But still, verification systems are evolving just as fast as the tactics used to falsely qualify for a mortgage.
“While fraud is still prevalent and an important concern, there are better systems in place today; as fraudsters get smarter, the industry continues to band together to protect our clients,” Mitch Stolarchuk, senior assistance vice president, Canadian Western Bank (CWB) Optimum Mortgage, told Mortgage Broker News.