Signs Point to Income Verification as Key Fraud Mitigation Tool for the Canadian Mortgage Industry

Situation
Home Capital Group, a Canadian holding company based in Toronto, cut ties with dozens of brokers for falsifying income documentation related to nearly $1 billion worth of single-family mortgages in 2014.

In December 2017, Montreal-based Laurentian Bank, one of Canada’s ten largest banks, announced they had discovered “documentation issues and client misrepresentations,” which led to the repurchase of hundreds of millions of dollars of mortgages.

Just this week, an article published by Reuters outlined items from an action plan created by Canada Mortgage and Housing Corporation (CMHC) to address concerns about system risks posed by mortgage fraud, including the misrepresentation of income on applicant-provided documents including paystubs, tax documents and notice of assessments. The falsification of income documentation – or lack of documentation altogether – was widespread in the United States and was a significant contributing factor to the subprime mortgage market meltdown in that country approximately ten years ago.

The Warning Signs are Clear
To address the seemingly increasing issues in the Canadian mortgage industry, the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of OSFI Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures in October 2017. The Guideline, which took effect on January 1, 2018, applies to all federally-regulated financial institutions (FRFIs) and stresses the importance of verification of income as part of mortgage underwriting process.

The Guideline states that FRFIs demonstrate strict “rigour in the verification of a borrower’s income, as income is a key factor in the assessment of the capacity to repay a mortgage loan, and verification of income helps detect and deter fraud or misrepresentation.” Among other details, B-20 specifically states the FRFIs must confirm that:

• the income amount is verified by an independent source
• the verification source is difficult to falsify

Equifax Can Help
The need for income verification continues to increase based on lenders looking to make better-informed decisions and to mitigate fraud risk in the ever-changing financial and regulatory landscape.

Verification Exchange™ from Equifax provides lenders with an independent source of income verification to help mitigate fraud risk and adhere to regulatory guidelines, such as B-20. With the increased need to verify income of consumers, Verification Exchange also helps employers improve internal efficiency, consistency, and security of their internal verification completion processes, while enabling their employees’ access to new employment, credit, and other benefits they may need.

To learn more about how Verification Exchange from Equifax can help lenders and employers manage income and employment verification processes, please contact verifier-info@equifax.com or visit www.equifax.ca/verificationexchange