This is the marketing pitch from a leading Canadian mortgage company:
"You are independent. And so is your income. But what you make on paper isn't always what you can bring to the table. So when it comes to affording the home you want, getting the mortgage you need can be a trying experience. It doesn't have to be that way. There are different ways of measuring worth. After all, shouldn't your business be your business? Now, there's a mortgage that assumes you are as good as your word. The mortgage is a stated income mortgage tailor-made for self-employed Canadians. It offers an easier mortgage approval process that accommodates your income situation. When it comes to getting the home of your dreams, something as simple as a T4 shouldn't get in your way. All it takes to qualify is your word on income, some employment verification and an assurance that your lending ratios, credit and tax liabilities are in good order."
Stated income loans are also called 'liar's loans' because they almost invite the borrower to lie about his or her income. The practice of mortgage brokers selling this product hasn't really been epidemic in Canada (yet), but in the US and other countries the use of stated income mortgages has balooned well outside the intended target user of the product. From well heeled self employed persons to 23 year old wannabe Donald Trumps.
This financial product seems to me like it should get the gong because of its susceptibility to fraud and misuse. What do you think? What do you think of the CMHC (the federal government) insuring these mortgages?