TORONTO--(BUSINESS WIRE)--MortgageCalculator.ca is the industry's leading Financial Planning Tool that is designed to help real estate buyers compare current mortgage rates of multiple Canadian financial institutions and allow them to accurately forecast the costs associated with purchasing of Real Estate.
Sam Kamra, a Realtor, private lender and a co-founder of MortgageCalculator.ca, shares some shocking insights on what has been happening with Canadian Real Estate & Financial market over the last decade.
Canadian home prices have risen at breakneck speeds in the last few years — particularly in major cities like Vancouver and Toronto. Though increased demand and low inventory are two of the factors at work, they’re not the only reason Canada’s housing is unaffordable.
In fact, there’s actually a more sordid culprit at work: outright fraud in the mortgage and real estate industries.
It’s true — banks, financial institutions, real estate brokers, and mortgage professionals have all worked to drive up Canada’s home prices, hurting consumers (and their pocketbooks) in the process.
The Heart of the Problem
To be fair, banks themselves aren’t directly involved in the fraud, but they’ve certainly turned a blind eye to the problem. Here’s how it works on the mortgage side: an unscrupulous broker or underwriter agrees to accept fraudulent income documentation in exchange for a fee. Dubbed a “paperwork deal” or “1% deal” (due to the 1% cashback they get from the transactions), these arrangements allow consumers to buy a home they wouldn’t otherwise be approved for — or sometimes a much more expensive property.
Financial institutions are often aware of the issue, but they let it slide due to the historically low mortgage risk we’ve seen in recent years. Double-digit price growth also safeguards these lenders from risk, virtually guaranteeing asset appreciation (and a financial safety net should the borrower foreclose).
Inflated Comparable Sold Prices
Mortgage professionals and banks aren’t the only ones complicit here, though. Real estate agents are also pushing prices up with unsavory tactics — particularly on the sale side. In some cases, brokers are even listing neighboring properties on the MLS and then marking them as sold — at inflated prices, of course — to influence comparable sales.
When these fraudulent listings are left on the MLS permanently, they influence buyers (comparables are often used in price negotiations) and inflate market prices for years to come.
Compounding the issue were dishonest investment buyers. Before mid-2017, investors were throwing caution to the wind, betting on high home appreciation and quick returns a year or two down the line. Many were offering 20 to 30% over asking price just to beat out other buyers.
When home sales started to slow in April 2017, investors got worried. Some refused to close unless the seller offered significant amounts of cash to push through the deal. Because these cash-backs were usually handled under the table, the homes were still logged as the “sold” under the buyer’s original, over-inflated offer — and thus, the problem worsened.
All Roads Lead to an Asset Bubble
Independently, the mortgage and real estate industries drove up prices with their dishonest practices and acceptance of outright fraud. When combined with the activities of unscrupulous investors, agents, and other professionals, it caused the record-setting asset bubble we see in Canada today.
Unfortunately, until banks get serious about spotting and penalizing fraud and real estate professionals adopt more honorable tactics, the problem will only worsen, further shutting out the millions of Canadians looking to buy a home.
Original: Exposing Rampant Fraud in Mortgage and Real Estate Industries.
