Players fear further tightening

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Despite a number of industry players allegedly falsifying income documents, brokers don’t believe guidelines need to be tightened.

“The requirements for income verification aren’t bad right now – they used to be much easier and required less paperwork,” Blair Anderson of Anderson and Associates told “It’s not that the lenders aren’t asking for enough or for the right stuff, it’s that there is some funny business going on with manufacturing the documents and obviously people are altering documents to show what they want them to say.”

According to OSFI’s B-21 guidelines, lenders are required to obtain third-party verification of income for all borrowers, “including substantiation of employment status and income history.”

Lenders don’t necessarily phone and verify income if the documents appear legitimate. That honour system works, argue brokers. They’re resisting calls for tighter guidelines.

Home Capital announced Thursday it had severed ties with 18 independent brokers and two brokerages – a total of 45 brokers – after an investigation pointed to falsified information about borrowers’ income.

The contracts were suspended between September and March and the lender attributes these suspensions to a loss in mortgage originations.

And if it comes to light that more lenders have dealt with inaccurate income verification, Anderson believes regulators could step in and impose stricter guidelines for verification.

“I wouldn’t single out Home Trust as the only company with a problem and (OSFI) saw this as an industry-wide problem they may step in,” Anderson said. “It’s possible that it’s a wide-spread problem and there is a worry that it could have a ripple effect; it doesn’t seem like it takes too much for the regulators to get involved, so that’s a legitimate worry.”

If OSFI does determine income verification accuracy is an issue plaguing lenders, it could impose stricter guidelines that do require more investigation on the underwriters’ part, which would add another step to the underwriting process and could potentially increase wait times for applications.
  • Mike on 2015-08-06 1:48:52 PM

    Perhaps it is supervision at the brokerages that create this problem. How does a principal broker control and monitor 30 or 40 brokers not to mention the 100's at the super brokers. Maybe requiring a every form to have one broker for every ten agents and a broker at every location that is responsible for compliance would protect from fraud. Mortgage brokerages need to take the lead, not wait for OFSI.

  • Arthur on 2015-08-06 1:52:45 PM

    Let's be real - it's been happening, is happening and will be happening with many more lenders other than and including HT.

    There is always some greedy enough and ready to do whatever it takes to get the deal done. No need to make this the hottest mortgage news headline that has ever been published. For anyone in the industry - it's not news at all.

  • Blair Anderson on 2015-08-06 2:24:47 PM

    With all due respect Arthur, you sound a bit too dismissive and complacent, almost accepting of the status quo. That will not help the fight against mortgage fraud. I for one am grateful this industry finally has a public forum to discuss issues that matter. Yes, mortgage fraud matters!

  • Dave on 2015-08-06 2:25:30 PM

    How about the underwriters getting paid off by brokers at certain monoline lenders? This has been going on for years. It's a hot market for years and people can't qualify for mortgages , so brokers start making offers to underwriters and admin staff to close their eyes on particular income docs. Then meet at Timmys with lots of cash in an envelope. This is the reality of the business, greed will show up when the money is good, ethics out the door.

  • Geoff Lander on 2015-08-06 3:23:07 PM

    Perhaps it's happening everywhere as it always has been or not. I can't speak to that-I don't do it nor do I want to go through the bother. On top of that I hear the whispers around but have no first hand knowledge of it happening. However all industries have these sort of back alley secret agreements so brokering is not unique in its plight. Should it be cleaner? Yes. Is it going to be? Doubt it. It doesn't mean we shouldn't try.

    Interestingly the next headline from MBN is about mortgage fraud decreasing.

  • George on 2015-08-06 5:01:58 PM

    Dave, where's your head? You make it sound like all mono line underwriters are on the take. I doubt that even 1 in 1,000 are. Now a bank branch manager or loan manager, maybe!

  • Ron Butler on 2015-08-06 5:29:26 PM

    Dave's suggestion that underwriters are being paid cash by mortgage brokers at a Timmys in the middle of the night is simply ridiculous. Just nuts. All lenders have an internal audit systems that would catch such activities.

  • Ross Taylor on 2015-08-07 3:10:10 AM

    So if the accused brokers have their ties with Home Capital severed, is there anything stopping them from camping out at another lender's door and resuming their wicked ways.

  • Gord on 2015-08-07 6:47:21 PM

    There is fraud in our industry and it will unfortunately continue. There is fraud in every industry. Fraud costs money. The cost is passed on to the consumer so it is in everyone's best interest to reduce it. But we need to maintain some balance. Fraud costs money, so does compliance and that cost is also passed on to consumers.

    During the credit crisis no major institutions failed, mortgage losses were minuscule. It did appear Canadian lenders might actually know how to measure and control risk. Why did the government decide to do this? Possibly because fixing something which wasn't broken was easier than fixing something which was-the Senate springs to mind.

    Have we reached the point where the costs to the consumer of unnecessary compliance and questionable rules being set by OSFI and the various securities commissions exceed the costs of activities they were meant to stop? How many clients actually read a multi-page disclosure? Not many in my experience.

    Maybe we should take a step back to letting the industry looking after itself. Very few statements have caused more trouble or cost more money than "We are from the government and we are going
    to help."

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