Spotting Identify Theft Combats Fraudulent Mortgages

Identity theft - a crime often attributed to title fraud - is something that Canadian lenders continue to struggle with. While stats on Identity theft in Canada are scant, this infographic includes some startling statistics with respect to our counterparts south of the border that are worth sharing with your team.

Why is this important? Educating your team about the cost and importance of identity theft is step one towards creating awareness to prevent fraudulent property transfers and mortgages. Your underwriters are your front line and the ambassadors that you rely on to protect your interests. Grasping the reality of the challenges that identity theft presents to the entire financial industry impassions many to want to work harder to combat it.

Here are some tips that you can deploy to identify potential identity theft:

·        Check all documents against one another.

·        Independently verify who is on title to the property and the transaction history on the property.

·        Conduct a skype interview to see the person face-to-face and compare against their identification.

·        Look for discrepancies or flags being reported on the credit report.

Identity theft can cause a ton of problems when it comes to lending, but a few simple steps can significantly reduce your risk and help you identify many fraudulent behaviours.

For more about preventing identity theft, or the tools to help you verify information, please contact Purview For Lenders today by calling 1.855.787.8439.

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. 

Everything You Need to Know About Straw Buyers and Straw Mortgages

Fraud! If you lend money on mortgages that is a very scary word. With a client who simply can’t make their mortgage payment and defaults, at least you have some remedies to pursue your money. However, when a fraud takes place, depending on the type of fraud, your borrower may not be real at all.

In the spirit of Fraud Awareness Month we dedicate this blog to fraud involving straw mortgages. Knowing how to identify one is your first step to gaining the awareness needed to prevent this type of fraud.

A straw buyer is someone who is making a purchase on behalf of another person. This generally occurs because the person who wanted to buy the home could not qualify for the financing even with a co-signer. Is it illegal to take out a mortgage for someone else, no? Straw buyers are sometimes used to hide crime and a straw buyer may be paid on behalf of a criminal and paid to take out the mortgage because the purpose of the purchase may be to launder money or purchase goods for someone who cannot legally make the purchase on their own.

Straw buyers are often used by criminals in large purchase transactions. The real buyer will always promise to make the payments – but what happens if they don’t?

One Calgary man found out the hard way. As reported by the CBC, he is amongst hundreds of other Albertans being sued by the Bank of Montreal in an alleged mortgage fraud scheme. The mortgage fraud amounted to a total of almost $30 million according to the CBC article and many of the straw buyers were new immigrants to Canada who were compensated up to $8000 per deal to allow their name to be used in the alleged fraud transactions http://www.cbc.ca/news/canada/calgary/straw-buyer-seduced-into-mortgage-scheme-1.952763.

Sussing out a straw borrower means asking more questions and strengthening the nature of your interviews. The first step: ask on application submission if the client is purchasing the home for themselves – and ask the same question a couple of times different ways.

Remember that a straw borrower will be the one who ends up holding the bag for the mortgage - and reminding someone of this can sometimes have a major impact. A declaration is a great way to freak out a straw borrower. Have the borrower sign a mortgage declaration that includes declaring that the purchase is for them and that includes the consequences associated to mortgage fraud/straw mortgages.

Knowing what to look for can significantly reduce the chances of getting stuck with a straw buyer - as can a few simple unassuming questions.

For more about the danger of straw buyers and straw mortgages, as well as a few tools to help avoid them, please contact Purview For Lenders today at 1.855.787.8439.

Something Seem Fishy? Don’t be Afraid to Dig a Little Deeper

If is walks like a duck and talks like a duck, it may be a duck! Financing a mortgage has a lot to do with good underwriting and funding models – but also a lot to do with gut instinct! If you are underwriting an application and something seems fishy, the time to dig deeper is now as to save invaluable time and expense!

Clients and brokers alike err from time to time. Often this is unintentional and occurs because the individual made their best educated guess on a piece of information. Of course, sometimes there are also deliberate attempts to manipulate information to get a deal through.

Here are some key underwriting tips that you may or may not be deploying to mitigate risk when you underwrite a deal.

Compare - When asking for documentation from the broker or client, such as void cheques, paystubs, ID, etc., make sure to check your documents and compare them against the information both in the credit report and in the application. This can be one way to not only identify issues that could surface later on your deal but also to mitigate fraud. I know, I know – seems like common sense, but many underwriters process volume deals and scan paperwork, when taking an extra couple of minutes could make a major difference.

Verify – don’t just take what is said to you at face value. Check the facts on the application at the application stage. Tools are now available that will enable you to verify who is the legal homeowner is, as well as verify registered mortgages and liens.

Evaluate – investigate the value yourself. Do not just depend on the fact that CMHC may accept the value or that you are going to get an appraisal to move forward on stated value. This can impact your closure rates with your insurers, not to mention avoiding that the wasted time spent underwriting a deal only to find out later that the value wasn’t there.

So we have talked negatives. You thought something seemed fishy and thus investigated it – does it mean that you will always discover a bad fish? Absolutely not. You may discover a big, fat grilled salmon. Your client may owe far less than anticipated or may have a home worth far more money than the client or broker projected. What does this mean to you? Upsell, upsell, upsell. You may have more of a deal than you think you do!

If something seems off, don’t ignore your gut. Compare, verify, evaluate. If everything is good, that is great. However, if something isn’t lining up, save yourself the time and expense and fix the problem right away.

For more about the tools that make comparing, verifying and evaluating easy, call Purview For Lenders today at 1.855.787.8439. 

HPI (House Price Index) and OMI (Ontario Mortgage Insight Report) Two Acronyms that mean A Lot

There is a reason why many economists subscribe and pay attention to the Teranet National Bank Index and The Ontario Mortgage Insight Report. If economists are paying attention to these what is contained in these reports, you should be too! These reports shed insight into the Canadian and Ontario real estate markets and trends. Reviewing this data can enable you to foresee changes coming in the market – both good and bad. This can help you to ramp up marketing efforts in particular regions or to mitigate risk.

The Teranet National Bank House Price Index is a monthly published report that provides the rate of change for Canadian single family home prices. The data is amongst the most accurate available and the report bases its measurements on actual sales in the public land registries. This is a national composite. Here is where you can register to receive this very valuable monthly report to your email inbox: http://www.housepriceindex.ca/Default.aspx.

The Ontario Mortgage Insight Report from Teranet also provides valuable statistical information which includes mortgages and home equity by location and transaction. This report is available in Ontario and you can register to receive it by contacting Teranet.

These two reports give you the competitive edge – stay in the know by staying in the loop!

Want to learn more about either one, or the many ways in which they can help you become more efficient and competitive? Contact Purview For Lenders today at 1.855.787.8439. 

More Mortgage Brokers Than Ever Using AVMs

While you have likely been using AVMs (automated valuation models) for many years as a lender, many brokers have only started using them more so in recent years, largely because they have been a product generally offered to lenders. This is no longer the case thanks to advancements in technology.   

The lack of use of AVMs or use of some platform to validate property values and home ownership information can largely explain the shock you likely hear from brokers when they submit a deal and without requesting an appraisal, you upsell the deal, down-sell the deal or decline the deal because you disagree with the value as a result of your AVM.

We often blog to brokers about the importance of strong lender/broker relationships. Developing and nurturing these relationships means work on both sides – especially if your approval and funding process is largely electronic, meaning little human contact between underwriters and brokers.

We constantly stress the importance of packaging and due diligence.

One way you can help your brokers to validate information more consistently and from the same source as you is to let them know the types of tools that you use when underwriting deals.

AVMs are an excellent example – just think of how many bad deals would be avoided before crossing your desk if your brokers leveraged AVMs to validate values, registered mortgages and the people on title.

This means education! When your BDMs hit the streets, arm them with more than current rate sales and info on who qualifies for what. Educate them about the tools, tricks and techniques that are available to perform due diligence and better package their deals.

Also – social media. Social media may be a marketing platform you use to attract brokers. Providing brokers with additional content that is of value to them and educating them on how they can be more successful can be a more powerful marketing tool than pushing out rate sales.

Teaching your brokers how they can underwrite more effectively leads to more qualified deals and an immense amount of time and cost savings – to you, your broker and, if you are not using AVMs, your insurers when disagreements re: value occur.

More mortgage brokers and agents are using Automated Valuation Models than every which is excellent for the industry. Get on board, and help your brokers be more effective.

For more about the value of an AVM for your brokers, please contact Purview For Lenders today at 1.855.787.8439. 

Private Lenders - Good Mortgage Gone Bad – Now What?

There is nothing worse than funding a deal that goes bad! If you are an FI who insures your deals you may have some solace knowing that you have that insurance in place – but there are still tons of lenders who don’t insure their deals simply because they can’t!

You know better than I that those more difficult deals where there are challenges with credit or income type generally don’t qualify for insurance and end up as equity deals that largely depend on the integrity of the asset, location and equity.

You may have done all you could – you may have had a conservative appraisal, lent on a low loan to value only to encounter a surprise later when a mortgage goes into default. This often occurs when there are changes in the marketplace impacting the value of a property – or in the case of second mortgages, the first goes into default and the first mortgage lender begins chewing up equity with whatever expenses they incur.

You likely have your standard procedure for dealing with defaulted mortgages – but this blog will shed insight into some technology that banks use, technology that is now available to even independent private mortgage lenders, that can be useful.

The first thing you want to do when a mortgage goes into default is check into the value and any encumbrances that may have been registered after your mortgage. A simple property search using a tool such as Purview For Lenders can achieve this by validating both value and registered encumbrances.

You can change your criteria to generate different models that show you the low to high end of the spectrum with respect to other properties in the area.

What’s more, you can even leverage an AVM (Automated Valuation Model) to identify trends in particular areas to be able to see where you have assets that may be experiencing a shift – good or bad. This could be a sign to solicit clients to borrow more – or a sign that on renewal, maybe this isn’t a good deal to have in your portfolio.

Shifts in markets and equity positioning are especially challenging for private lenders because when 1 year terms give you a chance to get out, annually, interest only payments mean that you are not seeing principal go down so a shift in values in a particular area can present considerable risk.

Want to be prepared when a good deal goes bad? Deploy the tools and technology available to you!! Purview For Lenders has those tools. Contact us today by calling 1.855.787.8439.