The True Cost of Mortgage Fraud and How to Mitigate It!

While perpetrators of mortgage fraud may think it is no big deal because it is somehow a victimless crime, mortgage fraud costs the mortgage industry as a whole. The cost of mortgage fraud is more than just the cost of the lost mortgage that may have been advanced – operational costs associated to collections, default management, power of sale/foreclosure costs, legal fees, property repair and maintenance costs, resale costs and more are all resulting costs associated with this crime.

The cost of mortgage fraud to brokers and the public include: more stringent lending guidelines and verifications by lenders, and rightfully so.

While as a lender you may rely on the mortgage broker or real estate lawyer to catch fraud, you have no way to know what tools they use or what internal procedures they have in place when performing due diligence. In fact, there have been many proven cases of mortgage brokers or real estate lawyers who were the perpetrators of the fraud.

In the former mortgage underwriting course offered at Seneca, the textbook used highlighted a famous example of mortgage fraud in Canada that involved (surprisingly) a real estate lawyer. In 2006, the Law Society of BC approved over 30 million dollars in payments in connection with a multi-million dollar real estate fraud case where a real estate lawyer received funds to discharge titles on real estate transactions he was involved in with a developer. The lawyer was subsequently disbarred.

Most financial and legal professionals are ethical but we can see how a few bad apples can spoil the whole bunch. So what can you do to protect yourself and reduce the cost of mortgage fraud within your organization?

The 2 most common forms of mortgage fraud are:

·       Fraud by shelter - this is when an application is manipulated so that a potential homeowner who could otherwise not afford a mortgage is approved – this could be through misstating income, doctoring documents all the way up to identify fraud.

·       Title fraud - this is when fraud is undertaken by an individual or group to make a profit and often the identity of the homeowner is assumed and a new mortgage is taken out.

The most common ways that individuals and other professionals in the industry commit mortgage fraud as it relates to a property are:

·       Over-inflating the value of the property

·       Misrepresenting characteristics of a property

·       Misrepresenting the use of property – the intention is for the property to be used for rental

·       Builder bail-out schemes – a builder presents paid borrowers as new homeowners to secure financing

·       Fraudulent title transfers

·       Property not in the name of the seller

Many lenders use tools like Fraud Check, an aspect of the Purview Report, to review active mortgages, recent sales, prior foreclosures, no conc. management, active judgement, active caution, active liens, power of sale, unusual discharges, frequency of Powers of Sale in an area and more…This information can really help to avoid the costs associated with mortgage fraud because it helps to mitigate risk.

Leveraging tools such as Purview For Lenders enable you to investigate a property or borrower, identifying potential fraud quickly so that you can dig that much deeper to ensure that you have a solid deal. These tools also go a long way towards mitigating fraud (especially where it relates to a property) and reducing the overall cost of mortgage fraud in the mortgage industry.

Mortgage fraud costs everyone involved a great deal of time, money and effort, can lead to the disintegration of important relationships, can damage reputations and make future success difficult.

For more about how Purview For Lenders can help you mitigate risks and identify fraud before it becomes a major wrecking ball, please contact us today by calling 1.855.787.8439.