Possible income misstatement on mortgage loan applications: Evidence from the Canadian housing market

We construct a measure of possible income misstatement (PIM) for first-time homebuyers by quantifying the gap between growth in incomes reported on mortgage applications and tax files from 2004 to 2014 Canada. Using two-stage least square framework correct endogenous nature house prices PIM, we find robust evidence that part observed dispersion PIM is caused price variation. This suggests borrowers have greater incentive misstate high-priced markets. report markets with tendency also had higher default rates.