“The requirements for income verification aren’t bad right now – they used to be much easier and required less paperwork,” Blair Anderson of Anderson and Associates told MortgageBrokerNews.ca. “It’s not that the lenders aren’t asking for enough or for the right stuff, it’s that there is some funny business going on with manufacturing the documents and obviously people are altering documents to show what they want them to say.”
According to OSFI’s B-21 guidelines, lenders are required to obtain third-party verification of income for all borrowers, “including substantiation of employment status and income history.”
Lenders don’t necessarily phone and verify income if the documents appear legitimate. That honour system works, argue brokers. They’re resisting calls for tighter guidelines.
Home Capital announced Thursday it had severed ties with 18 independent brokers and two brokerages – a total of 45 brokers – after an investigation pointed to falsified information about borrowers’ income.
The contracts were suspended between September and March and the lender attributes these suspensions to a loss in mortgage originations.
And if it comes to light that more lenders have dealt with inaccurate income verification, Anderson believes regulators could step in and impose stricter guidelines for verification.
“I wouldn’t single out Home Trust
as the only company with a problem and (OSFI) saw this as an industry-wide problem they may step in,” Anderson said. “It’s possible that it’s a wide-spread problem and there is a worry that it could have a ripple effect; it doesn’t seem like it takes too much for the regulators to get involved, so that’s a legitimate worry.”
If OSFI does determine income verification accuracy is an issue plaguing lenders, it could impose stricter guidelines that do require more investigation on the underwriters’ part, which would add another step to the underwriting process and could potentially increase wait times for applications.
Despite a number of industry players allegedly falsifying income documents, brokers don’t believe guidelines need to be tightened.