Residential Market Commentary - CMHC's new rules

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Canada Mortgage and Housing Corporation is making a couple moves that will send ripples through the mortgage market.  One could give lenders access to more confidential financial information about borrowers.  The other could ease frustrations for a group of borrowers that has consistently had problems securing loans.

According to documents obtained by Reuters, through a freedom of information request, the federal housing agency wants the Canada Revenue Agency to take a “more direct and formal role” in verifying income statements made on mortgage applications.  Right now the CRA does not verify income claims for lenders, even with the permission of the borrower/taxpayer.

A two-year plan drafted by CMHC shows the agency is concerned about a systemic risk posed by mortgage fraud.  The agency has said there is no evidence of widespread fraud in Canada, but it also says its information is limited.

The CMHC plan says paperless transactions, pressures to close deals quickly, rising prices and new regulations can “create strong incentives for individuals or mortgage professionals to engage in … fraud.”  A spokesperson also says CMHC is developing data-driven systems to screen for commission fraud, where a lender or a broker may have encouraged a borrower to exaggerate income claims.  The documents reveal the agency intends to start publishing statistics on mortgage fraud.

At the same time CMHC says it wants to make it easier for the self-employed to qualify for a mortgage.  The agency says it is giving lenders more guidance and flexibility to help self-employed borrowers.  The effort focuses on those who have been running their business – or have been in the same line of work – for less than 24 months.  The new policy is set to take effect October 1st.