While it's impossible to pinpoint the exact cost of mortgage fraud in Canada, industry estimates put the losses in and around the hundreds of millions annually (it's been estimated to reach half a billion dollars at its peak). There are many reasons why the exact figure is hard to determine, because as some lenders CMP spoke with said, banks don't exactly want to divulge that they have been a victim of fraud, and unlike in the U.S., it's not mandatory to do so.
In fact, it seems the only time banks admit to being victims of fraud is when a newspaper reports on it, and even then it's only because there is an innocent victim. It's what some lenders refer to as "widow and orphan" fraud, and usually involves an unknowing homeowner who has had their home refinanced or sold using fraudulent documents.
The problem is that while this type of fraud sells newspapers, there are a lot of other types of fraud that are less sensational than an innocent homeowner losing the title to their property. In the end these other types of fraud simply mean a loss to the lender or, which is often the case, the insurer, and it is usually a loss quietly absorbed.
Just one example of this which is increasingly becoming a problem involves lawyers doing the paperwork for several mortgages, all with the same closing date, then absconding with the money and leaving lenders on the hook for it. One measure to stop this, which we look at in more detail on page six of the guide, is the practice of lenders purchasing title insurance before the closing date of the mortgage.
"Just look at the Law Society of Upper Canada's website," says Doug Robinson, manager, fraud prevention at Scotia Mortgage Authority. "You would be amazed at the amount of disciplinary hearings going on and how many lawyers are involved in mortgage fraud."
The other factor to why the total cost is difficult to attain is that the cost of the loss is directly related to the value of the property at the time of foreclosure. Back in 2007, Peter Vukanovich, president of Genworth Financial, said the average loss per property was approximately $100,000. And of course this would be based only on the average cost of insured mortgages, conventional mortgages being a completely different statistic.
And according to a report from the Criminal Intelligence Service Canada (CISC), that number won't go down unless some serious actions are taken to fight it. In the report it states that "Financial institutions' heavy reliance on computer automated underwriting and property-valuation systems to conduct mortgage transactions, coupled with the difficulty of verifying the borrower's income or identity, will continue to be a major vulnerability contributing to mortgage fraud."
Not only that, but "organized crime will continue to exploit professionals within the financial and real-estate industries who will knowingly or unknowingly assist them in their fraudulent activities."
It's for these reasons that lenders and insurers have switched from the reactive to the proactive, and are targeting fraudulent activities through training, rigorous underwriting and internal departments specifically designated to fight fraud.
In fact, a perfect example of a lender not taking fraud sitting down happened as recently as July, when the Royal Bank of Canada filed a $8.9-million lawsuit against one if its former employees in Calgary, Ilan Levy, over allegations of mortgage fraud. It claims that Levy was the brains behind a fraudulent real estate scheme while employed as a RBC mortgage agent between August 2004 and March 2009. As an example of how complicated the scheme was, Levy is only among eight other people and six corporations listed as defendants.
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