In my opinion, the main reason there’s so much mortgage fraud in Canada revolves around the Canada Mortgage and Housing Corporation (CMHC) and, more broadly, the federal government’s involvement in the housing market.
For example, the United States has a lot of small and medium-sized banks, and if you’re one of those banks, you have to practice prudence with every loan you write.
So if an applicant in the U.S. lies on their mortgage application, the bank is incentivized to check for errors—because in the U.S., there’s no equivalent to CMHC to bail them out.
Canada, on the other hand, has a Crown corporation, the CMHC, which acts as the country’s top mortgage insurer. From a private banking perspective, this changes everything. If there’s a housing crash in Canada, the public is on the hook—the taxpayer will absorb the damage.
In the U.S., if there’s a housing market crash, the government is not designed to automatically bail out the financial sector. That’s not to say a bailout won’t happen, but unlike in Canada, a government rescue isn’t structurally baked into the housing system. In America, bailouts have to go through bureaucratic processes, and any banks seeking help would need to qualify—likely under the watchful eye of government auditors.
In Canada, not only do we have fewer, larger banks, but even the smaller ones understand CMHC’s role in propping up the market. It’s not to say they’re directly complicit, but they won’t invest capital like U.S. banks would in fraud investigation. In fact, they might not even care much about fraud—because in many Canadian provinces, there isn’t a formal foreclosure process. Instead, there’s something called power of sale, which means the defaulting borrower could actually profit from walking away from their mortgage.
Then there’s the CMHC mortgage insurance, which exists to artificially stabilize the housing market. If Canada’s housing market stops climbing, CMHC goes underwater. In this way, inflation in the housing market is built into the system.
If you understand price controls, then you understand Canada’s housing market.
CMHC represents a reality in which it is highly unlikely that Canada’s housing market will experience true deflation. That’s why, in my opinion, the future of Canada’s economy is stagnant.
Why? Because the run-up in housing prices represents the future purchasing power of the Canadian dollar (the loonie). Unless CMHC is reformed or dissolved as we know it today, the most likely outcome for the Canadian economy is that prices for everything else will eventually rise to match the cost of housing.
