Mortgage Fraud in Canada – What Are You Doing About it?

We write a lot about mortgage fraud in Canada, for various reasons. Obviously offering a tool that is a solution for mortgage fraud is one reason, but another, far more important, reason is because of the dire impact that mortgage fraud has in Canada and how it can lead to overall economic instability.

The more aligned our industry is – whether you are a lender, broker, lender, insurer, technology and other service providers, etc. - the more we can work together to combat fraud.

You can neatly sort into groups who commits fraud and why:

1.   The seasoned fraudster – This is someone who knows that they are committing fraud and do it for profit – this could be the borrower, a mortgage agent or flat out delinquent.

2.   The client who “forgot” or was “confused” – This is when the customer’s actions result in fraud. It could be missing, undisclosed or incorrect information. If uncovered, the customer’s usual response is that they were confused or simply forgot – not that they internally omitted or gave wrong information. Often this proves to be true.

3.   The mortgage agent who turned their cheek – This is when flags are appearing that an agent/broker chooses not to see because they think their deal will go through anyways. This is when mortgage agent underwriting steps into the grey and your bottom line takes a hit as a result.

You can perform a strong interview and ask that the client or broker to provide supporting documents as well as conducting your own independent verifications to ensure that you have a good, clean deal.

When it comes to doing your due diligence on a property to which you are thinking of extending financing, there are certain things that you can independently verify that will help mitigate the likelihood that fraud, with respect to the property being financed, will occur. Here are 5 things that you can independently verify at the application stage that can significantly reduce mortgage fraud:

·         Validate homeownership information

·         Check the financial history on the property

·         Check the sales history on the property

·         Look at the property from the sky and from the street

·         Generate an AVM to validate value

Now, we know that are you a lender, not the RCMP, and unfortunately some fraud will slip past you, but the more you do to ensure that you are not dealing with a fraudster, the better. You are somewhat challenged because if the deal is coming from an agent or broker they may not give you direct contact with the client. The more you do to independently verify applicant information, the higher the likelihood of stopping fraud in its tracks.

Basic due diligence, the type made easy with the tools from Purview For Lenders, can help you mitigate the losses caused by fraud, and make the industry more stable as a whole. 

Call us today at 1.855.787.8439.

Real Estate Fraud 101 – What Every Underwriter Needs to Know

We continue to bang the fraud awareness drum! Why? Because it is too costly to our industry to be ignored. There are so many types of real estate fraud that while the financial industry as a whole is dealing with the latest and greatest schemes to hit the marketplace – the fraudsters are already working on a strategy to roll out a new one.

While focusing on types of real estate fraud helps us to learn from others in the industry about what to look for, focusing on fraud awareness techniques can help you to uncover these types of fraud and even more issues that could be prevalent on a deal.

There are easier ways that you can go about doing this – and of course more difficult ones - but all hinge on you taking the steps to really review your client’s information, verifying it, and asking the questions needed to ensure that there is no funny business going on.

You can also make your own checklists to ensure that you cover your bases:

• Was the last transaction a cash sale? 
• Have you checked for real estate fraud? Has there been a recent sale or multiple sales activity on the subject property?
• Is the property profile suspect? Who was the previous owner? Is the property in power of sale, owned by a corporation or a party to the transaction like the real estate lawyer?
• Is it a non-arm's-length transaction? Is the person taking out the mortgage a past owner of the property or are parties to the transaction related? 
• Have you checked for title fraud? Has there been any recent discharge of mortgages following a recent transfer where mortgagor is the same?
• Have you checked for value fraud? Have you looked at an AVM to ensure that the property is actually worth what was stated in the application?
• Have you checked for fraud by income? This is something technology can’t do and is something where mere moments can mean all the difference – did you call the employer to verify employment?

We sound like a record on repeat: reviewing the legal homeowner, the sales/transaction history on a property, financial encumbrances and value are the fastest way to identify real estate fraud. Checklists are helpful too! Some technology summarizes information for you:

These are some examples that you can put into your checklist to cover your bases and ensure that you are doing everything you can to avoid real estate fraud. As an underwriter you have a lot of responsibility on your shoulders – the more organized you are and the more tools you have at your disposal the easier it is to perform your very vital role.

Purview For Lenders’ Fraud Check is just one of the many tools we offer to help you mitigate mortgage fraud - contact us today at 1.855.787.8439.

Mortgage Fraud in Canada and What Brokers Have to Say!

We recently concluded our first Fraud Awareness Month during which we dedicated our social media to fraud awareness and increasing the dialogue between lenders and brokers about types of mortgage fraud in Canada that are prevalent in the industry. It was a huge success!

So many financial professionals chimed in with amazing insights and feedback that we wanted to highlight some of those dialogues.

Brokers acknowledge that lender/broker relationships are incredibly important. Lenders who receive business primarily from brokers count on brokers as a first line of defense. This is one thing that is very attractive about accepting mortgages from brokers – they do so much of the legwork. One thing that came out of Fraud Awareness Month was that brokers across the board really care about the quality of the deals they bring forward to their lenders and are summarily committed to deploying whatever tools they have in their arsenal to combating mortgage fraud in Canada.

Many are even leveraging the most current technology, incurring personal expense to take extra measures when performing due diligence including verifying:

·         Home ownership information

·         Registered mortgage information

·         Sales history information

·         Value of the property and more

Many are using much of the same technology that you use – like AVMs, running property searches, even independently picking up the phone to verify employment. Mortgage fraud in Canada and as a whole has been acknowledged across the board as a major issue and it seems financial professionals on every level are realizing that we all play a valuable role in the process of spotting fraud.

Working with brokers the likes of whom were vocal during Fraud Awareness Month can give you peace of mind that you are going to receive deals that close and are unlikely to have issues later. How can you know if you’re dealing with one of these types of brokers?

When interviewing new brokers – ask lots of questions. What is their position on mortgage fraud? Do they see mitigating mortgage fraud as one of their roles in the mortgage process? What tools do they deploy to combat mortgage fraud?

Also, sharing with brokers the tools you use to mitigate mortgage fraud (like Purviews fraud check as one example) is a great way for brokers to seek out broker versions of these tools so that your information is aligned with their information.

Increased alignment, dialogue and sharing on issues surrounding mortgage fraud in Canada lead to strong relationships and a healthier Canadian financial industry.

When it comes to conquering mortgage fraud, we all play a roll, and working together makes it that much easier. Check out how Purview For Lenders contributes to the challenge: http://lenders.purview.ca/. 

Stopping Valuation Fraud and the Human Element

In the spirit of fraud prevention, this month we draw attention to fraud awareness. The only way to prevent mortgage fraud is to first become aware that it is occurring. There are many different types of mortgage fraud, some that involve the borrower/buyer and some that involve the representation of the property itself.

A very common type of mortgage fraud that involves a property is property valuation fraud. This relates to the misrepresentation of a property’s value that bodes to the root of your security.

Because appraisals are delivered as a report prepared by an individual, after the appraisal is completed it may pass through the hands of the client and mortgage agent or broker. After an appraisal has been completed, in many instances the appraiser will send the appraisal to the broker and in turn to you.

Also, let’s remember that appraisers not only depend on lenders and being on a lender’s list to get business, they also depend on mortgage brokers and agents to select them from the list. So, while their customer may be you, the lender, not keeping mortgage agents and brokers happy means that they may not be selected on your behalf. This can create an environment where even an appraiser can look for ways to beef up a property’s value by a few thousand to save a broker or agent’s deal.

Anytime a human is involved in anything – even if they are an accredited professional – there is a potential for fraud.

This is why if you are going to order an appraisal, coupling it with an automated valuation model (AVM) is the most prudent way that you can avoid valuation fraud.

Also, make sure to ask for the original appraisal to be delivered directly to you by the appraiser – this way any discrepancies can be attributed directly to the appraiser.

Closely review all of the data in the appraisal and pay attention for fields that are blank or that may even appear to have been whited out.

Validate the sales comparables used in the appraisal yourself. This simple step can quickly identify alterations that may have been made to sales comparables. Also, validate the subject property characteristics against what is being generated in the AVM.

Since an automated valuation model is not human, thereby without the emotion or motivation to see your deal happen, an AVM should always be your first line of defense against property valuation fraud.

For more about the benefits of adding an AVM when attempting to avoid or identify property valuation fraud, please contact Purview For Lenders today by calling 1.855.787.8439. 

Reduce Mortgage Fraud Using Technology!

We blog so much on the topic of fraud because it remains a very common challenge facing the mortgage industry as a whole. There are so many different types of fraud and one reason it is so challenging is because, in many instances, fraud is being committed but the individuals don’t even see it. With so many parties to the transaction and hands in the pot, you can see how easy it is for fraud to occur.

·         Real estate agent – perhaps they know something about their client, they are about to be laid off for a month, for example, but because it’s only a month, they see it as harmless so don’t tell the broker.

·         Mortgage Broker – perhaps the value of the client’s home is $230,000 but if beefed up another $10,000 there would be enough equity to cover all their debts – I mean hey, what is $10,000, right?

·         Client – perhaps the client visits a mortgage broker and tells the broker that their parents are loaning them their down payment but in fact they are borrowing it.

·         Appraiser – perhaps when at the house the appraiser is impressed because the homeowner has similar design taste as the appraiser. The client gives the appraiser a huge sales pitch about the house and so the appraiser decides to beef up the value a little bit to help the client out.

Genworth put out a great release recently outlining common types of mortgage fraud - check it out here: http://genworth.ca/en/lenders/types-of-mortgage-fraud.aspx.

Fraud will always exist, so lenders will have to continually seek out measures to combat fraud – and technology has been a great help in this area. Using technology and some good old fashioned investigation you can ensure that you know all there is to know about your application. Here are some tips that you can use to prevent fraud:

8 Red Flags to Help You Uncover Mortgage Fraud

Mortgage fraud touches even the most seasoned underwriter and is something that lenders have to remain vigilant to mitigate. This blog will provide you some red flags to uncover mortgage fraud.

1. Employment/income verification is difficult to verify. It is always prudent when underwriting to validate the income source. This may include Googling the individual/company or calling to verify income and other measures. If the business has no online presence or is not listed in the telephone directory this can be a sign that fraud is present.

• On this note pay attention to employment letters – are they on letterhead? Are there spelling errors? Does the income on the job letter match the paystub and Notice of Assessment?
• Are the numbers on the paystub or tax assessments rounded off? That is a big flag, but not so much in the case of job letters.
• On bank statements, you can double check deposits and match the amounts indicated on the clients paystubs.

2. Down payments. Where is the money coming from? If from several sources or in cash this is a flag.

3. Void cheques – verify them. You wouldn’t believe how often fraud deals are discovered when a lender goes to debit a payment from the client’s account after closing and then they discover the account doesn’t exist. It’s as a simple as a phone call to the bank to double check the information stated on the cheque.

• Is the void cheque a counter cheque and not personalized?

4. Identification. The applicant doesn’t produce significant ID - or any at all!

5. Meetings. One or more borrowers have not been available for in-person meetings to sign up and have insisted on conducting the signing of different documents by fax or email.

6. Value. Sale prices are significantly higher/lower than stated on the application. This can be quickly checked through an AVM.

7. Title: Who owns the house?  

8. Mortgage balance: You want to make sure that there are no encumbrances or liens so:

• Ensure that the broker has had the applicant sign 3rd party consent form – this will be very important if you need to verify balances.
• Request that the applicant provide a mortgage statement.
• Run a search to validate that there are no undisclosed mortgages or liens.
• If something comes up – request the current balance directly from the lender.

What is important is that you are using the right tools and resources to quickly underwrite your deals. For example – numbers 6-8 can be accomplished by using a tool like Purview which is multi-functional and can do more than one thing.

For more about how to use Purview For Lenders to help identify and avoid mortgage fraud please contact us today by calling 1.855.787.8439. 

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.

Tips for Identifying Mortgage Fraud

Unfortunately mortgage fraud is rampant and lenders lose hundreds of millions of dollars each year to mortgage defaults where there was an element of fraud that was not discovered through the underwriting process.

Canadianmortgagetrends.com reported that according to Equifax Canada mortgage fraud has increased 50% in recent years. 

Whether you are responsible for an underwriting department within a financial institution or you yourself are an underwriter, being able to identify mortgage fraud is your first step to combatting this very serious problem that hurts the entire industry.

The best way to combat mortgage fraud is to identify when fraud is present on a deal. Digging deeper and looking for specific indicators when underwriting will reduce the number of fraud deals that end up being funded.

Fraud can be committed by many different participants on a mortgage application, in many different ways, with many different intentions. Here are some examples:

·        Individuals – homeowners or buyers of a property

·        Group – mortgage or real estate agent or broker, real estate lawyer, etc…

Individuals, groups and criminals commit mortgage fraud for different reasons:

·        Information being innocently omitted:

o   An individual forgets that a parent is on title.

o   An individual doesn’t disclose that their home is under construction or that they have a tenant because they don’t realize it is relevant, etc.

·        Information being intentionally omitted:

o   An individual intentionally overstates the value or condition of a home to secure more financing.

o   An individual intentionally fails to disclose a material fact.

o   A real estate or mortgage broker fails to disclose a material fact and assists the borrower in presenting false documents or facts to the lender.

·        Through extensive pre-planning and sophisticated or technical means:

o   Financing properties and individuals that don’t exist.

The most common forms of these types of mortgage fraud are fraud for shelter, fraud for title or fraud for criminal enterprise.

Here are some tips/red flags that can help you identify if fraud is prevalent on a deal:

·        Income data is difficult to verify, paystub numbers don’t match up with other data

·        The employment letter is not on letterhead, has grammatical mistakes or the income or information does not match with other sources

·        Numbers on paystub, employment letter, T4, NOA or other income document are rounded off

·        Pay deposits don’t match bank statements

·        Down payment is in cash

·        Significantly more value is being claimed for the property while the current owner recently purchased it for much less

·        Applicants listed on the deal are different from those listed as the owner of the property

·        The property appears different than described on the application

The easiest way to identify mortgage fraud is to have access to the technology and tools available to run searches, reports and access data that can help you uncover problematic deals, or worse, a problematic referral source. Sometimes bad news is good news and taking the extra steps when underwriting will ensure that fraud deals don’t slip through the cracks.

For more information about how to identify mortgage fraud and the tools you can use to do it please visit www.purview.ca/lenders or call 1-855-787-8439.  If you are already a Purview For Lenders client and want to learn more about how to use Fraud Check please watch this brief video.

Did you Participate in Fraud Awareness Month?

Fraud continues to plague the mortgage industry. Mortgage fraud impacts everyone from insurers, to lenders, to brokers and more… Fraud drives of the cost of everything up - from insurance to the cost of the additional underwriting and due diligence required in correlation to mortgage financing.

March was Fraud Awareness Month in Canada, an annual initiative undertaken by the RCMP. In the spirit of Fraud Awareness Month, many in the mortgage industry got involved not only to raise awareness but also to start a discussion on how to reduce mortgage fraud in the future.

Mortgage Brokers News recently reported on Fraud Chat, a series of 3 chats held in the month of March addressing various topics related to fraud. Fraud Chat was hosted by the Financial Services Commission of Ontario and the Toronto Police Service.

The intention of Fraud Chat was to enable individuals to share and engage on the topic of fraud in the spirit of both awareness and prevention.

The hosts of Fraud Chat encouraged those in any role in the financial services community with anything material related to fraud to share it. Did you get a chance to participate in Fraud Chat? If not, you can view the dialog on Twitter by searching #fraudchat.

For more information about tools and technologies that you can leverage to mitigate mortgage fraud please visit www.purview.ca/lenders