Housing agency seeks stronger measure to catch fraudsters

Canada Mortgage and Housing Agency has asked the country's tax authority to take a "more direct and formal role" verifying income claimed on mortgage applications, in order to tackle mortgage fraud.

Unlike tax authorities in the United States and the United Kingdom, the Canada Revenue Agency (CRA) does not verify income for lenders, even with taxpayer's consent.

That may change, as Canada's overheated housing market draws comparisons to the United States in the years before the subprime mortgage crisis, made worse because many borrowers overstated their income.

CMHC's action plan, shows the agency is concerned about systemic risk posed by mortgage fraud. The agency has said repeatedly that there is little evidence of widespread fraud in Canada, but it also says data is limited.

The documents describe several other initiatives, including the roll out of Citadel, software from Equifax that flags high-risk mortgage applications.

A top CMHC official said the agency has been testing Citadel since January and plans to go live within a few months.

In recent years, two Canadian lenders – Home Capital Group Inc and Laurentian Bank of Canada – have reported problems with borrowers misrepresenting their income in limited and specific groups of mortgages, although they did not involve unusual defaults. But as the CMHC plan notes, rising home prices and low unemployment can mask fraud.

In January 2017, Equifax Canada said its data had showed a 52% increase in suspected fraud since 2013, but did not say what proportion of applications were affected.

As a government-owned provider of residential mortgage insurance, CMHC covers lenders' losses when insured homeowners default, including some cases that involve fraud.