What is Fraud?
Misrepresentation of material fact, done with knowledge, intent to deceive and to the detriment of another.
Why do people commit mortgage fraud?
There are basically two primary reasons:
1. Fraud for Shelter/Housing
What is Fraud for Shelter/Housing?
This type of fraud is often committed by borrowers who misrepresent their income, employment, debt or value of their property to qualify for a mortgage they would not otherwise qualify for based on Bank/ Lender or Regulatory requirements. The intent of the borrower is to repay the loan.Â Fraud for Shelter/Housing is often committed by individuals (sometimes with the help of industry professionals) to:
- Qualify for a larger loan and/or lower rate.
- To purchase a larger home then they would otherwise qualify for
2. Fraud for Profit
What is Fraud for Profit?
This type of fraud is often committed by industry professionals who are often working in collusion or with organized crime groups with the sole intent of making a profit from the fraudulent mortgage. The fraud can be orchestrated by any industry professional or professionals involved in the Real Estate transaction (i.e. the Mortgage Broker, Real Estate Agent, Appraiser, Lawyer, Lender Underwriter etc...) Fraud for profit is often committed with one or more of the following misrepresentation(s):
- Inflated property value â€“ sometimes supported by a falsified property appraisal
- Fictitious or paid purchasers
- Identity Theft
- Falsified loan documentation (i.e. identification, employment/income, bank statements or investments statements, Purchase and Sale Agreements, down payment etc...)
- To purchase Real Estate; often with no intention to reside
If you misrepresent or omit any relevant information on your application to obtain a mortgage loan you are committing mortgage fraud.
Given the increase in mortgage fraud, we urge a continued focus on identity and documentation validation, and encourage all industry professionals to make use of our resources to learn more. Genworth Canada firmly supports the need for ongoing training and will continue to provide information and resources to industry organizations and other mortgage fraud training initiatives.
To verify income
- Make sure that the employer listed on the application actually exists. Based on the income confirmation letter, use the reverse directories on www.canada411.ca or myTELUS where you enter the phone number or address to find the company.
- Call the employer's payroll or human resources department and verify the information contained in the income confirmation letter
- Google or MapQuest the company to make sure the address is appropriate for the type of business.
- Check on Careerowl.ca to ensure that the earnings claimed are reasonable for the profession or region.
To verify the down payment
- Make sure that the full source of funds for the down payment is documented.
- Beware of the down payment being the deposit with the offer: verify that the borrowers had the funds in their position and that the funds were not borrowed.
- Where the down payment source is a gift, the donor's name, address and phone number should be provided in the gift letter, together with indication of their relationship to the borrower (immediate family only).
- Do not accept internet downloads of bank statements
- Watch out for math errors on bank, investment, and RRSP statements. Mistakes are a red flag that the statements may not be legitimate
- Ensure the void cheque cross references to the account number, bank and branch. Verify that the branch of the financial institution actually exists.
To verify the MLS listing
- Use realtor.ca to verify that the property has been listed on the Real Estate board's system.
- Ensure all fields are complete on MLS (Realtor name, firm, phone number, contract date, expiry, etc).
- Review the offer to purchase and ensure you have all schedules.
- Know your Real Estate market. Does the sale price seem reasonable to the area?
- Does the vendor's surname match the purchaser's? If this is a non-arm's length purchase, was the deposit paid to the relative?
- If it's a private sale, obtain information about the property by completing the private sale checklist.
Other things to watch for
- Are chattels involved? Deduct these from the purchase price (nominal values are usually acceptable).
- Are there purchase incentives? If there are bonuses for purchasing such as a car, appliances or furniture, treat these as chattels and deduct their value from the purchase price.
- Watch for special conditions. For example, is there work to be completed before closing? Are there kickbacks or rebates to be made after completion?
- Have you seen more than one file per year with the same vendor, purchaser or address? Is the purchaser acquiring a portfolio of rental properties?
- Watch out for the combination of a quick closing with a conflict of interest (non arm's length, double ended or dual agency). This is a tell tale sign of a fraud file.