More evidence of fraud in Canadian mortgages, warns ratings agency S&P

S&P Global Ratings says it expects more evidence of Canadian residential mortgage fraud could emerge amid high household debt and home prices.

The ratings agency raised its economic risk rating for the Canadian banking sector to three from two on a 10-point scale.

The increase did not result in a change to any of the bank ratings.

S&P said it believes that high house prices and household debt relative to household disposable income increase incentives for fraud such as overstating income in order to meet a lender's qualifying criteria.

It pointed to the scandal at Home Capital Group as an example of problems in the Canadian market. S&P also noted that Laurentian Bank found problems with some of its mortgages.

Laurentian has said that its problems largely involved loans which were misflagged and that it has not found any evidence of wilful wrongdoing.