The new mortgage rules—not to mention the rising cost of housing—may prompt more borrowers to forge documentation so that they can qualify in the A channel.
“I believe fraud is increasing. The new mortgage regulations are getting stricter and I think fraud may increase for banks,” said Wasah Malik, a private lender with Mortgagepedia Inc. “The rising cost of housing definitely has something to do with it, and so do the increasing interest rates. Also, there’s the fact that people want the best interest rate—if they qualify on the B side they want better interest rates with the A Banks, so they’re prone to committing fraud just to save an extra buck per month.”
Malik has noticed instances of fraud increasing over the last decade from brokers and borrowers alike, but only because originations have grown commensurately with the population. He believes lenders need to become proactive about implementing fraud identification strategies.
“When you analyze documentation, you can see some errors,” said Malik. “A lot of calculations will be incorrect or the alignment might be a little tricky. Another way is we always interview the client to make sure the information we’re getting is correct—an interview can tell you a lot about a person, like whether or not they’re telling the truth.”
Some fraudulent documents aren’t easy to detect. The CRA can confirm notices of assessment, but receiving an answer can take weeks. Bank statement veracity, however, cannot be confirmed unless there’s suspicion of fraud.
“There’s no way to know that they’re legitimate because you can’t call another bank and say, ‘Hey, is this real?’”
Laurentian Bank just announced that an audit revealed “documentation issues and client misrepresentations” on mortgages sold to a third party, marking the second time this year a major Canadian lender has had to dodge suspicions of malfeasance. The other, Home Capital, funded fraudulent mortgages in 2015 and has dealt with the fallout ever since.
of Butler Mortgage doesn’t think mortgage fraud is widespread because, “No one moves into a house knowing they can’t make their payment,” and believes fraud is a symptom of the perpetrator, not market conditions.
“Fraud is a continuum based on the individual,” he said. “Either the individual mortgage broker is interested in doing fraud, and they believe that’s how they should proceed, or they don’t. It’s a human intention. It not a question of a broker who’s been honest for 20 years decides to do fraud just because of new mortgage rules—that’s never happened.”
He added that if lenders check every element of documentation, fraud cannot survive scrutiny.
Malik calculates every line item, no matter how many pages, and recognizes red flags, but says sophisticated fraud can slip through the cracks.
“A lot of times we have to go based on instinct.”
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