There has been a growing concern about fraud in the industry for a number of years. According to Equifax, suspected fraudulent mortgage applications have increased by 52% in Canada since 2013.
Because the mortgage industryâ€™s rules and guidelines have become more complex, there is increased diligence among lenders and brokers. The mortgage stress test has made it more difficult for some consumers to qualify for a mortgage.
And in todayâ€™s high-tech world, itâ€™s not always the case that lenders and borrowers meet face-to-face.
There is also pressure for some files to close quickly, from consumers who expect their real estate transactions to be fast, with minimal paperwork, which could lead to potential fraud.
Categories of Fraud
These are the general categories of fraud:
- Fraud to get shelter. An individual commits fraud in order to get a mortgage on a home they could not otherwise obtain or afford.
- Title Fraud. The identity of a homeowner is assumed and a new mortgage is taken out assuming the homeownerâ€™s name and credit history but with loan proceeds going to the fraudster. The fraudster will use forged documents to transfer ownership and will use fake identification to get the mortgage on the property.
- As part of other criminal activities. A mortgage may be fraudulently obtained to get access to a home for illegal purposes.
These are the general types of fraud that occur:
- Fraud Involving Property. Overvaluation of property; misrepresentation of property characteristics; builder bail-out scheme using a "strawâ€ buyer.
- Fraud Involving Employment Status. Forged employment letter; forged or altered pay stub; inflated income; misrepresentation regarding self-employment
- Identification Fraud. Forged or altered ID, nonexistent individual
- Equity Fraud (Down Payment). Bogus gift letter; bank account statements not the borrowerâ€™s
- Title Fraud. Fraudulent title transfer when mortgage has not been paid in full; property not in name of seller; identity theft relating to title fraud
Itâ€™s in the best interest of the real estate and mortgage industry to work together, along with consumers, to reduce fraud. To further protect yourself and to help avoid the situation:
- Always store personal information, including birth certificate, SIN, bank account numbers and credit card details, in a secure place
- Shred documents, such as credit card statements
- Never reply to spam or e-mails that ask for banking information, credit card details, passwords or other sensitive information
- Safeguard your personal financial information.
- Contact your mortgage lender or broker first if you are having difficulty making your mortgage payments.
- Consult your lawyer before giving another person a right to deal with your home or other assets.
- Do a land title search with your provincial or territorial land registry office. This search will show the name of the property owner and any mortgages or liens registered on the title.
You can also help to protect yourself by inspecting your credit report at least annually by contacting Canadaâ€™s two credit-reporting agencies: Equifax Canada
Fraud is serious business in Canada and has a negative impact on the entire industry. Fraud hurts people, not just companies or the government. When lenders are defrauded, consumers pay the price. Losses from fraud could ultimately result in higher interest rates and fees for borrowers.
TMG mortgage professionals stay up-to-date about mortgage fraud through internal training sessions, and through industry educational sessions. They understand the concept of fraud, recognize fraudulent schemes and understand their consequences. This knowledge helps brokers protect themselves, their clients, their business relationships, and the industry as a whole.