In an emailed response, CMHC stated “there is no timeline in place for
the co-operation with Canada Revenue Agency on income verification,”
but industry sources expect it could roll out as early as October 1.
CMHC is Canada’s largest mortgage insurer. In the first half of this year, it insured 107,000 homes.
According to a 2017 Equifax study, mortgage fraud has
increased 53 per cent since 2013, though it did not indicate the number
of fraud cases. A survey by the debt-rating firm also found that 13 per
cent of Canadians would be comfortable fudging a mortgage application.
With the tighter mortgage restrictions today, it could be more
tempting for mortgage applicants to lie, including inflating their
income. For years, some banks required only a signed stated income form,
which was especially popular with the self-employed and contract
workers who often lacked conventional payment stubs.
Lenders accept CRA statements of income that can be printed from the
CRA website and, some say, are easy to alter. Currently, the CRA is not
allowed to provide a taxpayer’s information to a third party, even with
the taxpayer’s permission.
Under the CMHC proposal, income would be verified by giving lenders
direct access to CRA data on a potential borrower’s income.
But not everyone is on board with the idea. Some critics of the plan
note that Canada’s mortgage delinquency rate has fallen to near-record
lows, even as housing prices have risen and mortgage fraud is feared.
In a report earlier this year, Equifax found that British Columbia
mortgage holders had the lowest mortgage delinquency rate (0.08 per
cent) in Canada, despite having the country’s highest home prices, and
default rates across the country are near record lows.
CMHC said its arrears rate on insured mortgages fell to 0.27 per cent
in 2018’s first half, down from 0.29 per cent a year earlier. Equifax
also found that Canadian homeowners have “good” credit ratings.
Rena Malkah, owner of CYR Funding of Thornhill, Ontario, a mortgage broker for 44 years, argues that income verification is an issue best left to underwriters.
“Their job is to verify the claims. If they can’t, they should be
fired and replaced by someone who can,” she told Canadian Mortgage
Malkah argues that credit rating is more important than income
verification. “If someone has a high credit rating, it shouldn’t matter
what their income is. If they fight and scrap for under-the-table money
to pay their bills on time, then it should be of no interest to the
[mortgage insurer] where the money came from.”
But some Metro Vancouver mortgage brokers believe CRA involvement is inevitable.
“Mortgage fraud is right up there near the top of the list of things to crack down on,” said Port Moody-based Peter Kinch, vice-president, mortgage agent and investment adviser with Vine Group, part of the Mortgage Alliance Group.
“In the United States, one of the online lenders can access your tax
returns as soon as you fill out a mobile app. This allows them to grant a
mortgage approval in seconds.
“It only makes sense that CMHC should be able to do the same thing up
here. I can definitely see that happening, and it would definitely cut
down on mortgage fraud when it comes to income verification.”
As of June 30, CMHC’s insured mortgages totalled $463 billion, and the
agency held $13.5 billion in capital available to cover any defaults.