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The Big Story: Mortgage Fraud

Most brokers think it could never happen to them. But mortgage fraud is still a problem. Not anymore with brokers than with banks, but a recent report put the cost of mortgage fraud at $400 million, a number everyone should be concerned with. For brokers, preventing fraud comes down to “knowing your client”.

Education is also key in knowing what to look for when putting a deal together. This week we spoke to Ray Leclair, VP, public affairs for LAWPRO (TitlePlus), Lee Welbanks of The Mortgage Centre and Bill Eves, Wayne Sudsbury and Grant Brown of Homeguard Funding Ltd. (VERICO). Find out on today’s The Big Story, on TV, your home for industry news, opinion and analysis.


Video transcript below:

John Tenpenny, Mortgage Brokers News TV
John Tenpenny:
 Hi, I’m John Tenpenny, Editor of CMP Magazine and welcome to the Big Story on Mortgage Broker News TV.

Most brokers think it can never happen to them.  But mortgage fraud is still a problem.  Not any more so for brokers and for banks, but a recent report put the cost of mortgage fraud at $400 million, a number everyone should be concerned about.  For brokers preventing fraud comes down to knowing your client.  Education is also a key and knowing what to look for when putting the deal together.
Bill Eves, Vice President, Homeguard Funding Ld. (VERICO)
Bill Eves:  I believe that it all boils down to know your client.  If you know your client, I personally have never experienced a mortgage fraud, although I have seen some suspicious looking items in my practice.  But never have an experience on end result basis.  I think it boils to if we know our client, you are not totally at risk for being part of a fraudulent deal.  The real estate people have it, why don’t we know your client well.  
Lee Wellbanks, Broker, The Mortgage Centre
Lee Wellbanks:  I think we really need to do a little more due diligence on our part.  We need to report fraud when we see it, there is a lot of tools available to us, whether there is programs, there is lenders, there is other partners that we can report these things to.  We need to know our clients better, we need to meet our clients, these are all things that I think will help reduce a lot of the fraud that happens in this industry and perhaps isn’t done enough at this stage of the game.
Wayne Sudsbury, President, Homeguard Funding Ld. (VERICO)
Wayne Sudsbury:  Statistics show us that it’s a very small percentage of the total mortgages outstanding in Canada today, that are actual fraudulent transactions.  Notwithstanding that, I believe that mortgage brokers should take mandatory courses every 2 or 3 years to make sure that they are aware of the red flags that can cause or lead to a fraudulent transaction.
Ray Leclair, VP, Public Affairs, LAWPRO
Ray Leclair:  What we are telling anybody about fraud is basically to be on alert for signs of fraud.  If things that will give you an indication that there is something funny going on, that could be somewhat that the client is not as interested in the properties they should be, they don’t have the interest in the expenses, they don’t necessarily have the right documentation, they don’t have surveys, they don’t have bills, they don’t have those types of documents that typically the clients would have and who are interested in the property.  The ID may not be exact, they may not allow you to deal with the previous lawyer or the previous banker or go to visit the property.  There is a number of things and you know the documentation just doesn’t look right, there is a third party maybe that seems to be governing the transaction.  Those types of things on themselves are not suspicious, but basically on as a whole, you start getting a flavour and that’s what we are trying to get them to look at, about when to heighten their sensitivity.
John Tenpenny:  If brokers are suspicious that a fraud is occurring, knowing what to do is the next step.
Ray Leclair:  So anybody who thinks that they may have, may be dealing with a fraud should be asking questions.  That’s probably the number one thing.  The more questions you ask the more problematic you are as a target and therefore they move on and so that’s the best thing to do.  But the other thing is meet with the clients, that does heighten the sensitivity of that time.  Review the documentation, they may not have a proper ID, proper documents, be careful though, there are some very good fraudulent documents and fakes out there that are available on the internet from someone. So those are all things to look at.  Of course you want to try to deal with your referrals, the fact that somebody referred him to you may be part of the set up.  And so you want to contact your friends who have sent you these referrals to make sure that they are legitimate clients, but again the most important thing is, if you think there is a fraud ask more questions.
John Tenpenny:  A mortgage fraud may not be on the upswing, it’s form certainly has become more sophisticated.  And while prevention is the key, so is ensuring that the penalties for those who commit fraud are enough of a deterrent.
Ray Leclair:  So the most troubling trend is probably the fact that they are becoming more sophisticated at their own game.  They are learning from their mistakes.  So used to identified easily a fraud by the bad email, the bad writing.  Now they must have got spell checkers and they are getting much better at it.  The documentation they are presenting is much better, much more advanced, much more sophisticated.  They are presenting full packages and so it’s looking more very realistic and very much what you would expect to see.  And so it becomes little more difficult to identify it.  So you have to be little more alert, so going back to the original messages, be alert as to what you are doing.  Look at it, scrutinise it and watch for those tell tale signs so that you can better identify the situation.
Grant Brown, Broker, Homeguard Funding Ltd. (VERICO)
Grant Brown:  The reality with fraud is that we are never going to entirely get rid of it.  What we need to do as brokers, is we need to improve our education and our due diligence, as well as an entire industry including lenders lobby the government and our respective associations to really increase the fines for mortgage fraud.
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