The Will

will¹

/wil/

verb

1. 1.expressing the future tense.”you will regret it when you are older”
2. 2.expressing inevitable events.”accidents will happen”

That is the definition of the word will from Wikipedia. However, the will I want to ramble on about today is more “the will”.

Canada faces a lot of problems. Just this week, the Toronto Police service was lambasted for suggesting that homeowners leave their keys by the door to make it easier for the criminals to steal their cars. Now of course, we all know the TPS had indented it to be a community safety message. TPS is simply trying to keep people from being beaten up by criminals trying to get their car keys, but the message got a little distorted by the time it was disseminated to the social media circles.

Of course we all know that there have been thousands of people practically begging Ottawa to bring out income verification through CRA to help stop mortgage fraud. It is almost unanimous that all industry players want a CRA level of income verification to stop mortgage fraud – yet nothing has happened.

This week we saw yet another article run on CBC about Canada’s big 5 banks giving bad advice, and basically screwing the customer. We have seen this before. It happens all the time, and there is special after special on it. Nothing is ever done of course. The headlines die down, and it is back to business as usual for the big banks. RBC was slapped with a fine for effectively allowing money laundering, and the fine was laughable. It basically amounted to the equivalent of me taking away my teenagers weekly allowance.

For years we were told there was a supply shortage in housing, and everyone was quick to the microphone to promise change, but we somehow build less homes now than we have for a long time. Why is no one building?

All of these issues are the result of an identical problem : Will. We simply don’t have the will to change anything. For every seemingly simple solution to a problem there is a countless web of complexities than loom below. Nothing is simple anymore. Banks wield too much power in today’s society to give them big fines. Taxation is a variable in almost everything that is transacted, so if you were to slow the transactions, you slow the tax revenue. Criminal enterprises are nimble, so if you shut down one avenue, they will create another road.

Canada today lacks the political will to change anything. Let’s look specifically at income verification for mortgages. Now, this I think we can all agree is a no brainer, right? It is quite simple: A lender can verify the income directly with Canada’s tax authority. Simple, easy, and not even very time consuming. A very simple program can be built so that it is as quick as pulling a credit bureau. So, it seems like it should be a no brainer, and implemented by next Tuesday.

However, for every problem it solves, it creates another one. The largest problem this creates is that it would slow down the real estate market almost overnight. Even using some of the conservative estimates, a lot of Canada’s real estate sector is supported by fraud. A slowing real estate market is a big problem for a lot of people – namely governments. When you look at all the tax revenue generated, it quickly becomes evident why no one wants to forcibly slow down real estate. The HST on a new build, land transfer tax, Toronto’s special land transfer tax, HST of the realtor commission, Income tax charged to the builder, the realtor, the mortgage broker, the home stager, the appraiser, the lawyer, etc. etc. Land registry fees, the list goes on and on. Every home that is not sold creates a lot of missing revenue at all 3 levels of government. How many millions ( or in some cases billions ) is being made by municipalities on permits for new builds? Government fees, taxes ,and costs account for almost 35% of the cost of a new house. That is a lot of money. Why would any government enact a change that would willingly and forcefully drop their own income? Governments are broke, and need every nickel they can find. Coming up with an income verification system would slow real estate down meaningfully, and drop the revenue.

So let’s say, by some miracle of the heavens that the government did implement this new direct income verification system. Yeah, let’s say they did. Okay, well, you still have Canada’s big 5 banks that would simply re engineer their approvals around it. All of a sudden CIBC would allow TDS to go to 80%, and hold the file on their books. Banks have done this for decades, so why would we expect anything different? Leading up to 2023 OFSI was militant on extended ams, and keeping risk down. Interest rates went up, and all of a sudden the banks were allowed to am the mortgage out to 50 fucking years! WTF??? Banks will always have a zig for every zag the rules throw at them. Even if they got caught, or were offside, the penalty would be worth about 1% of the money they made, so it was a risk worth taking.

Imagine how much the economy would slow down if real estate slowed down? Imagine all the realtors, mortgage brokers, real estate lawyers, builders, builder trades, home stagers, appraisers, home contractors, roofers, the list is endless, that would see reduced income, and pay lower taxes. Imagine how many of them would qualify to start taking funds from social programs. All of a sudden the government has less revenue coming in, more money going out, and a flatlining economy – all right coming into a federal election. No matter your industry, no matter your profession – it is always about politics. Politicians know what is good for them – and only them. Politicians don’t give a damn about anyone else but themselves. This has been proven out year after year. People go and lobby governments for change – our own industry advocate MPC has done so. I know we appreciate the advocacy – but let’s be honest – nothing ever changes. The only time something changes is when the government can benefit directly from a change.

The mortgage and real estate industry in Canada has some amazing potential to be a healthy, vibrant career for many people, but the incentives are mis-aligned. Until a decreasing property market benefits the party in power, there will never be meaningful change. Unfortunately for the constituents it will continue to be the wild west until that time. The average hardworking person will be forced to compete in the market with people who commit fraud, doctor and alter documents, use laundered money for down payments, and lie about the intent of the future use of the property. We will continue to go head to head with people who will skirt zoning by laws, building codes, max residency rules, and a litany of other rules.

No matter what the powers to be tell you – it isn’t that there isn’t a solution – it is just the will to get that solution does not exist. Governments have all the tools at their disposal to stop the problem tomorrow. Governments have the power to bring bills into power and change rules – almost overnight. Right now there is simply no downside from mortgage fraud. Name me a borrower that committed mortgage fraud, got caught, and suffered any penalties or repercussions………I’ll wait. There is no downside for the offender on mortgage fraud. Imagine if mortgage fraud became part of the Criminal Code, with a penalty of 25 years in prison? Harsh? Yes. Does it drive home a point? Also yes.

My point is, all of these things “could” be implemented, but my question is……..”will” any of these be implemented?