Mortgage 101 – Navigating Canada’s Changing Mortgage Landscape

Clinton Wilkins and guests dive deep into the evolving landscape of mortgage lending in Canada. From the rise in mortgage fraud and the tightening of regulations to the increasing role of family support in helping first-time buyers.

Clinton Wilkins
Welcome back to Mortgage 101. In May, we welcomed the chief credit officer at Manulife Bank, Sandi Burns. She tells us about mortgage fraud and how our neighbours in the south are affecting us here in Canada.

Clinton Wilkins
So many, you know, bad players out there, and it’s, I mean, it must be just daunting from a bank perspective, to make sure that the people that you’re doing business with are people that you want to be doing business with. You know, the reputational risk is just so high, like, imagine if the bank does a mortgage, and then there is some reputational risk that can be tough, because the bank doesn’t want their name in the media saying, Hey, we did these mortgages.

Todd Veinotte
Absolutely. Yeah. And I would think that if, as times get more desperate financially for people, you’re going to see people taking more risks, as well.

Sandi Burns
And so interestingly, you know, we had higher interest rates, so we saw a spike in fraud for shelter. Now, with the uncertainty and everything that’s going on with our partners in the south, we’re definitely seeing the potential for more fraud coming, potentially across the border as well. So yeah, I think there’s never a time when we can say, Oh, we’re going to relax.

Todd Veinotte
How strident are Canadian rules, as opposed to American rules, for this type of thing?

Sandi Burns
I would say that in Canada, we are heavily regulated, and we’re grateful for that. I think it is the best way to put it in the States, you can have federal regulations, but then you also have state-driven regulations, and I don’t think that it is as conservative or as heavily monitored, however. We have seen in the news quite a bit recently about money laundering and things like that. So I would say we have good guidance and partners in the federal government that support us in the guidelines that we should have in place. But it is ever-changing. You know, they’re using their minds for evil instead of good out there, and it is an ever-shifting landscape where we’re seeing fraud coming in so many different ways that we always have to be reiterating and changing and making sure that we’re covering ourselves.

Clinton Wilkins
And I think it’s hard to manage that expectation from a consumer’s perspective, you know, sometimes I see consumers be like, well, 20 years ago, I just basically got a mortgage with a handshake. I don’t think that was true, because I was doing it 20 years ago. We were doing it basically 40 years ago. Maybe, sure, but, you know, at the end of the day, whatever rules that lenders are putting into place, it’s really to protect Canadians from themselves. You know, really, we want to make sure that this consumer can afford to make their mortgage payments. We don’t want the bank to have a loss, just as much as we don’t want the consumer to have a loss. You know, buying a home is the biggest purchase of people’s lives, and a mortgage is the biggest debt. We want to make sure that they can pay. And that’s why there’s this due diligence.

Sandi Burns
It’s so true. And as much as the guidance and regulations and everything else seem onerous. We want to make sure that the customer is not waking up in the middle of the night stressed about, How am I going to make my next payment? What happens if I lose this property? That’s the last thing that we want, and so we want to make sure we’re providing the right solutions, and that folks are in a mortgage that they are comfortable paying regularly.

Todd Veinotte
Do you see people sometimes? Because sometimes multiple people are applying for a mortgage, or a couple or whatever it might be, whereas one of the partners is doing something fraudulent and the other is completely unaware of that?

Sandi Burns
That is a great question. I honestly don’t know. Typically, if we see something fraudulent.

Clinton Wilkins
Politics were a hot topic this year, and sparked tariff scares and tons of uncertainty back in May. We didn’t know where things were headed, but we learned what red flags to look out for.

Clinton Wilkins
Obviously, as the economy is more challenging and as house prices increase, you know, fraud is just such a forefront of what I do every day. And there are different types of fraud. There’s fraud for profit, fraud for shelter, and if we never thought it impacted us here in Atlantic Canada, we would see maybe, like, one fraud file. And when we say fraud file, it’s suspected fraud, because it’s not fraud until it’s actually proven in court that it’s fraud. But we would see one file maybe a year. But it’s certainly becoming more and more prevalent here in Atlantic Canada, and I know in Ontario, and obviously in the West, it’s just rampant, especially when it comes to mortgage lending. We saw a big spike in fraud for shelter when interest rates were high, certainly in fraud for shelter. So that means I’m trying to buy my house, and I can’t quite qualify. So maybe I don’t. Doctor up my income statement in some way, shape or form, or some bank statement. So it is. It’s usually an individual or a very small scale.

Todd Veinotte
How often do you see that, by the way? Is that quiet? I wouldn’t think that’s very, maybe it’s more common than I think.

Sandi Burns
It is, I wouldn’t say it’s like an everyday thing, but it is probably more common than you think. What are some red flags for that? So, really good red flags. We asked the question, Does it make sense?

Clinton Wilkins
So if you hear about the cab driver making $200,000.

Sandi Burns
And then the other piece is, do all the documents tell the same story? So we don’t ask for just one piece of paper. When you’re, say, buying a house, there is your full purchase and sale agreement, there’s proof of your down payment, there’s proof of your current income, there’s your credit bureau, there’s, you know, all of these pieces of information exactly. And we, if we’re reviewing these all together, you can start to cobble together a story. And when I led an underwriting team, I always, always told them, if your spidey senses are tingling, chances are something’s up, right?

Todd Veinotte
So you’re saying that people will actually doctor, like Photoshop or whatever document.

Sandi Burns
They can get pretty, pretty high tech with it.

Todd Veinotte
Yeah, right, what percent? And you may or may not want to answer this gets sneaks one by.

Clinton Wilkins
I don’t know. I mean, you don’t know, I guess, unless there’s a loss.

Sandi Burns
We have an additional challenge when you have a fraud ring. So you mentioned fraud for profit, and that’s when it gets really scary, because then it’s not just a one-off mortgage; then it’s probably a group of mortgages, and you can be looking at millions and millions of dollars that are at risk.

Todd Veinotte
So what type of organization would be orchestrating fraud for profit?

Clinton Wilkins
I think there have to be multiple bad players involved. That’s right. Sometimes there could be a mortgage broker, appraiser, lawyer, or realtor. It’s not just one person creating these products, especially if we’re talking about something on that scale; there would need to be multiple players involved to kind of pull something like that off and sometimes we see files coming from out of province and from, you know, clients we don’t know, or brokers are trying to refer to us that we don’t know. And we don’t do that specifically, because I want to know who the customer is. And we’re really about that advice piece. But I’m sure it happens all the time, absolutely. And you’re like, Oh, here’s a full package of documents. Well, why is the client not calling me directly? They just ask more and more.

Sandi Burns
That’s it. The other one is, if it’s a rush.

Clinton Wilkins
Especially, we see these are closing in 10 days, right?

Sandi Burns
And it’s like, but the purchase agreement may have been signed, like, three months ago or something. And you’re like, Well, why all of a sudden? Is it a rush? Did you really sign a purchase agreement without any conditions and no financing in place? I doubt it. And so then you start to ask a few more questions.

Todd Veinotte
So, how bad does the fraud get that people actually try and make up jobs?

Sandi Burns
You can see just about anything. The most typical is, you know, altering a little bit.

Clinton Wilkins
Usually, the income or down payment.

Sandi Burns
down payment is usually the most common, and then the income for the qualified.

Todd Veinotte
At some point, though, you’re gonna have to justify that. You’re gonna pony up with them if you’re a fraud.

Clinton Wilkins
If you’re misrepresenting, we’ll call it misrepresenting instead of fraud if you’re misrepresenting the down payment. But maybe that down payment is actually coming from the proceeds of crime. Oh, I see they’re trying to legitimize the down payment, and then, you know, washing the money to try to make the down payment. It’s very, very common.

Todd Veinotte
So what are the rules when it comes to down payment? Because you and I had a conversation, there are some government programs that will assist with the down payment. There are lots of venues, lots of avenues for down payments. So what are some, what are some of the rules for down payment?

Sandi Burns
Well, the money has to be in a Canadian financial institution, and it has to have passed kind of all the anti-money laundering rules. So it goes through a suspicious transaction with track, thin track, whatever financial institution it’s with, they’re going to verify those funds. And so we typically like to see it sitting in a bank account for like 90 days, a Canadian bank account. If it’s a gift letter, it has to be from an immediate family member. And the mortgage insurers out there, the default insurers, they define immediate family a little bit differently, but usually it’s someone like your mom or dad or brother, sister, brother, sister, exactly, right, and it has to be an actual gift, so you can’t have to pay me back, you know, after three months or something.

Clinton Wilkins
Just imagine if the gift is not a gift, and it’s actually a loan, which actually worsens your financial position, where maybe you have to make a payment on this. And I see this all the time.

Todd Veinotte
Well, how would you police that? Though police might not be the right term, how do you monitor that? Because if. Somebody has a side deal, then you don’t know, right?

Sandi Burns
The big challenge is that we have our gift letter, and the gift letter clearly, you know, explicitly says this is a gift if, at the end of the day, they’re sliding something behind it.

Todd Veinotte
Yeah, that’s, that’s, that’s their they’re gonna have to deal with that as well. They’re not helping themselves.

Clinton Wilkins
Moving into June, the Bank of Canada was holding steady. We welcomed our guest, Trevor Gordon, to highlight reverse mortgages and talk a little bit about the Bank of Mom and Dad.

Trevor Gordon
So you know what I was saying, I finally appreciate that much more when a client says, I don’t want to leave the home, and I just want this money for care, right? And we do a lot of those across the country, because aging in place is so important and that has such a value, I think. And I think people potentially, I don’t know if this is true or not, but they might live longer if they can be in their own home. Absolutely, there’s no more will to live. Maybe there are water bees, absolutely, and it’s, it’s all in our environment. It’s like, you know, I know where everything is. I know where the store is. I know what the neighbours are, right?

Todd Veinotte
Being able to pay for somebody to clear the driveway and mow the lawn, and take care of the garden that you love is important.

Clinton Wilkins
Absolutely, maybe even doing renovations of the home to stay in the home.

Todd Veinotte
That’s right, absolutely.

Trevor Gordon
And, I’m actually seeing more now of the children saying to their parents, I can’t continue coming to cut the grass. And, you know, I’m they’re getting old, they’re getting older. They’re getting older as well. So, this allows them to hire somebody to come and do that work for them.

Clinton Wilkins
What I’m seeing a lot, Trevor, is people wanting to get into the housing market, and parents and grandparents really helping first-time homebuyers get in. And a lot of these kids, and all you call them kids, but they’re adults. Need big, big gifts to be able to get into the housing market. You know, because of their income and the cost of housing. I’m seeing a lot of six-figure gifts. And I read something the other day, the average gift now, for a first-time home buyer to get into the housing market is something like $106,000.

Trevor Gordon
So it’s bank of mom and dad, yeah. And in the, you know, Toronto, Vancouver markets, it’s almost impossible for somebody to get in there.

Clinton Wilkins
They don’t need 100,000; they need 500,000 or a million dollars.

Trevor Gordon
Exactly so, you know, Bank of Mom and Dad is a common use, again, helping with down payments, early inheritance. What I’ve seen a lot of here is actually mom and dad helping out through a separation or divorce, right? I never thought about that one, yeah. And I think, honestly, it’s almost like they’re getting their inheritance now versus later, yeah. And I think that’s more for the grandkids, so let’s take them in the house. Nanny and Grandpa want to make sure the grandkids are just down the street, right? And they’re going to do what’s necessary to help, help in this situation.

Clinton Wilkins
More to come on Mortgage 101, in the final section of the Mortgage 101 best of special, where we hit the streets all summer to chat with you about your burning questions to ask a mortgage broker.