Oh the Irony: Automated Valuation Models Used Most by Banks But Even More Useful to Private Lenders

How ironic: a tool that has typically been used most by many larger lenders is actually much more useful to private ones! After all, as a private lender, it tends to hurt a bit more each and every time you lose a deal – whether through losing it before it funds, or worse, after it has been funded and blows up.

Larger lenders have deeper pockets and tend to assess the performance of their portfolio as a whole, looking for trends. However, you may not be viewing your portfolio that way and more on a one-by-one basis – especially when dealing with much lesser volumes.

The more time and money you put back into your pocket by identifying problem deals earlier in the application stages and mitigating losses on deals that go into default, the better off you’ll be in the long term.

You have likely heard of AVMs - Automated Valuation Models - probably most often in the context of finding upsell opportunities, investigating deals and mitigating risk, but they have a lot of other uses. In this blog we will look at how you can use them at the application stage and also when a deal becomes a problem after it is already on the books.

Not clear on these? In a nutshell, an AVM or Automated Valuation Model is a report you can generate to evaluate what a property is worth.

At the application stage, you can use this to immediately determine if there is a discrepancy in the value of a property, either making it not worth ordering an appraisal or pursuing or identifying more equity and an opportunity to upsell your deal.

Once a deal has gone sideways - or you think one is about to - you can use an AVM to get a current estimate of what the property is reasonably worth, which will make a major difference on how and what enforcement remedies are the most sensible to deploy.

Some providers of AVM reports, Teranet’s Purview For Lenders for example, offer additional capabilities as well so that when you request an AVM you can also validate who is on title or any registered encumbrances.

So now you see why so many larger lenders have historically relied on AVMs - but also why these are so valuable to private lenders. And, this is a tool readily available to you – whether you are big or small! The positive impacts of implementing AVMs into your workflow can be felt most by smaller lenders where each and every deal means a lot!

Want to know about Automated Valuation Models and how they are beneficial to your daily strategies? Call Teranet today at 1.855.787.8439.

Coaching Your Brokers on Deal Packaging Best Practices

Lenders are famous for sending their business development managers out to make mortgage brokers and agents aware of current products and rate promotions. This is an important aspect of marketing to brokers that is essential for keeping yourself fresh in their minds so that they send you deals. Your BDM’s are a formidable road force and your direct contact with your brokers and agents in many instances, so why not make the most of them?

Inbound marketing is a newer method of marketing promotion that has seen real changes in marketing methodology. The very essence of inbound breaks marketing into four stages:

·         Attract – make your business known to a stranger

·         Convert – convert the stranger into a lead

·         Close – make your lead a customer

·         Delight – make your customer a promotor

Our BDMs do a great job attracting brokers and agents, making them a powerful source of business for your institution – but the key to delighting your brokers and making your brokers an extended arm of your sales force is happens when you are constantly providing them with something of value that builds your relationships.

Education is one of the best ways to give added value to your brokers and this can be delivered through the very people that are on the front lines, daily – your BDMs.

Look at deal packaging as an excellent example. One of the things that frustrates lender/broker relationships the most is too many deals that don’t close. Perhaps the broker thinks the lender misrepresented the types of deals they would do, or perhaps your challenge as the lender is bad deal packaging that led to things coming up through the underwriting process that railroaded the deal.

Empowering your BDMs to coach brokers and agents on the following works to strengthen relationships and avoid issues later on:

·         Tools they can use to vet the deals they are working on – let them know what tools you are using

·         How to package a tight deal

·         Things in the application that you recommend that they verify before submitting a deal

·         What fields within the mortgage application matter to you!

Whether it is deal packaging tips, or even tips that they can deploy to land new customers or upsell current deals, value ad education go a long way to develop these life long and very profitable relationships.

Relationships are about give and take - so make sure that you are giving something of value to those in your network. This is the best way to make the most of these connections.

For more tips on how to coach our brokers on deal packaging best practices, please call Teranet today at 1.855.787.8439. 

Arranging a Mortgage Discharge: How to Find Out Who a Private Mortgage Holder Is

As a lender, there are key points in time when validating information can help you uncover an issue with your deal that could prevent it from closing. The top 3 deal killers: undisclosed people on title who won’t sign, less property value than anticipated, and higher balances on registered encumbrances than anticipated.

The operational savings to a lender’s underwriting department when issues are identified with deals sooner are exponential. This is why having a look at the encumbrances registered on a property is a good step for a thorough underwriter.

With regard to encumbrances to the title of the property, these may sound familiar:

• A mortgage where the discharge amount is far higher than anticipated
• Undisclosed mortgages on title
• Undischarged mortgages

Private mortgages can be extra challenging because even if the name of the lender comes up when searching the property, how can you obtain their contact information? For example, if Home Trust has a mortgage registered on a home, you can look up their telephone number easily. However, if Jane Doe has a mortgage registered, that info may be less accessible.

The best steps that you can take to position yourself to contact a private lender and directly request a discharge statement are as follows:

1. Run a search in Purview For Lenders to see if any encumbrances are revealed
2. You can then use Teranet Express to request a Parcel Register.* This will give you the “Instrument Number” associated to each registered encumbrance.
3. Using the instrument number you can purchase an Instrument Image which will almost always reveal the name and contact information for the real estate lawyer who represents the private lender and who likely registered the mortgage.
4. From here you can proceed to request a discharge statement.

Having the broker require that their client sign a consent form for you to access information from 3^rd parties is also helpful. If a tax lien or other third party lien comes up, they will not provide you with information without the client’s consent.

It is always best to identify encumbrances and request your own discharge statements. Once a lawyer is engaged you are likely far down the priority ladder in the underwriting process and out of pocket expense may have occurred.

If you are working with a private lender, get the most information possible, at the very beginning, to avoid issues when it comes time to close. Purview For Lenders can help uncover encumbrances, thereby saving you time and money down the road. Call us today for more information: 1.855.787.8439.

*An official product of the Ontario government pursuant to provincial land registration statutes.

Real Estate Developers Found Guilty in Fraud Scheme

It is always sad to hear news concerning colleagues in the real estate and financial industry being active participants or perpetrators in fraud schemes that contribute to negative impacts on the industry as a whole. In mortgage transactions especially, there are often many parties to the transaction:

·        Real estate agents, brokers and/or developers

• Mortgage agents and brokers
• Appraisers
• Property inspectors and more…

These are all professionals apart from you, the lender, who participate throughout the process – and bad conduct on the part of one could result in a massive financial loss to all. Part of the issue is education because sometimes professionals make adjustments to deals to make them more favourable – not because they are intending to commit fraud but because they are trying to sell you on their deal and they may see filling small shortfalls as innocent or in the grey.

Then, there are instances of blatant fraud schemes that create concern for all. Take, for example, this recent article from Mortgage Broker News which discusses the recent conviction of two real estate developers whose property fraud scheme saw investors lose an average of $50,000 to $100,000 each: http://www.mortgagebrokernews.ca/news/real-estate-developers-found-guilty-in-fraud-scheme-188687.aspx.

This scheme appears to have been fraud by title. A recent Vancouver Sun article indicated that these real estate developers promised security on loans by investors when it turned out that they never owned the property they pledged as security to begin with.

In total, millions of dollars were stolen and the real estate developers were ordered to pay hundreds of thousands of dollars in fines in addition to repaying the fraudulent money owed.

Fines are great, but they don’t really satisfy when these individuals have nothing. You can’t enforce on nothing so even if someone commits fraud against you and you receive an award from the court or government it doesn’t mean that you will ever see that lost money. Many instances of mortgage and title fraud are not even thoroughly investigated by police even if it is fraud involving money and property.

The best way to prevent fraud is to identify it before you fund a deal. In the above mentioned instance, preventing said fraud could have been as simple as investors or the brokers who represented them taking the 5 minute step of verifying who was on title to the property.

Shoulda, woulda, coulda, right? When these things happen the only thing the industry can do is learn from them and improve.

For more about the tools that make identifying fraud that much easier, please call Purview For Lenders today at 1.855.787.8439.

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.