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.
