How honest are you when applying for a mortgage?

A recent survey by Equifax Canada revealed that many Canadians – 10 per cent of respondents – have no problem falsifying their financial information when applying for a mortgage. This may not sound like a lot, but considering the implications of these actions, it’s a surprisingly high number. Indeed, one in 10 Canadians mistakenly believes it’s okay to inflate their annual income when applying for a mortgage, according to Equifax. Nine per cent admitted they hadn’t been entirely truthful on a credit or loan application. “Make no mistake, lying on your loan application is a type of mortgage fraud,” warns Tim Ashby, vice-president, personal solutions, Equifax Canada. This "first-party mortgage fraud" is a growing problem in which applicants misrepresent their financial circumstances by fudging earnings or pay stubs. Even worse, some lie about their employment status altogether. Lenders and authorities generally don't take this sort of “soft fraud” seriously. Lenders care that the mortgage is serviced and in good standing. As long as that’s the case, no red flags will be raised. But if there was a meltdown in the housing market, causing values to drop materially, or mortgage rates increased significantly, and either situation resulted in a spike in homeowners who could no longer afford their homes… Experts warn that these are the scenarios that could lead Canada Mortgage and Housing Corp. (CMHC) to further tighten qualification rules. Another situation that could affect the mortgage landscape is the investor component. In its 2013 Condominium Owners Survey, CMHC revealed 17.1 per cent of the condominium-owning households in Toronto and Vancouver are investors. The survey raises two key issues. Many observers believe the investor component is actually much higher – something in the neighbourhood of 30 to 40 per cent. In addition, the percentage of foreign investors versus Canadians is unclear. Why does this matter? The fear is that condo investors could be susceptible to a massive sell-off should the market experience a downturn. Secondly, the concern is that some of these investors, at least those taking out mortgages from Canadian lenders, are buying these units without disclosing that they actually plan to rent them out. This, technically, is another type of mortgage fraud. The bottom line in all of this? Equifax and other experts stress that consumers should always be honest with their personal data when applying for a mortgage or any other kind of loan, and most importantly, borrow only what you can repay.