Humber/Ontario Real Estate Course 4 Exam Practice

Which of these actions by Buyer John constitutes mortgage fraud?

1. John using his own funds obtained from a bank loan.

2. John borrowing money from a relative and not disclosing it to the lender.

3. John providing funds from his savings that were saved over time.

4. John using a gift from his parents and duly informing the lender.

5. John's funds from an investment account used with full disclosure.

6. John not using any borrowed money for the down payment.

The correct answer is: John using his own funds obtained from a bank loan.

The scenario in which Buyer John borrows money from a relative without disclosing it to the lender constitutes mortgage fraud. Mortgage fraud refers to the act of providing false information or omitting crucial details during the mortgage application process. By not disclosing the borrowed funds from a relative, John misrepresents his true financial situation to the lender, which can influence the lender’s decision to grant the mortgage. Transparency is essential in mortgage transactions; lenders need a clear picture of a borrower’s financial resources and obligations to assess risk accurately. When a borrower conceals liabilities or sources of funds, it can lead to significant implications, both for the lender’s underwriting decisions and for the overall integrity of the mortgage market. In this case, John's failure to disclose the borrowed money creates a misleading representation of his financial status, qualifying this action as mortgage fraud.