Last week we spoke to a crown attorney whose caseload consists largely of mortgage fraud.
He says he comes across document-related fraud day in and day out and cites a surprising number of cases where bank insiders claim to “accidentally overlook” or turn a blind eye to doctored job letters, pay stubs, etc.
Most of the cases that make it to court involve calculated criminal plots where there’s more than one criminal party and/or the lender has incurred material losses.
The bulk of fraud, however, is fraud for shelter. That’s when mortgage applicants plan to live in the home and misrepresent their qualifications to get approved.
In researching this story, we spoke with a few underwriters who say that fraudulent documents pop up regularly. At least 1 out of 50 applicants submit “highly questionable” or fraudulent documents, they estimate. Some say that ratio is higher.
When banks find these doctored documents, the application is stopped dead in its tracks.
What lenders don’t do often enough, say the underwriters we interviewed, is report these incidents to the police. “It’s a PR nightmare to prosecute,” one of them told us.
Moreover, authorities tend to focus on criminal “fraud for profit” as opposed to fraud for shelter.
Make no mistake, however. Submitting altered documentation to misrepresent your income or down payment is fraud, plain and simple. “The Criminal Code clearly states that obtaining funds, including mortgages, by providing false information is a crime,” says the Canadian Association of Accredited Mortgage Professionals.
Despite the persistence of document fraud, underwriters say it was worse 5-6 years ago. Since then, lenders have more procedures, training, and technology in place to fight document fraud.
Rob McLister, CMT
Being an UW in the past, I came across an NOA where the word “INCOME” was spelt “INCONE”. When I called the Agent to clarify, they just sheepish laughed and hung up.
Unfortunately, as a broker, I’ve seen directors of brokerage firms simply tell the broker who had submitted a frauduent file to the lender and had been caught : ¨Send it somewhere else, and don’t do it again¨ Meaning ¨Try not to get caught next time¨ It all starts with us at the origination level. Some brokers have to ask themselves, is it worth losing my licence and reputation over a couple 1000$ ?? Unfortunately, I think penalties aren’t stiff enough in some cases.
cool :)
fraud for shelter is “OK”
fraud for profit is bad :)
isn’t prison a shelter too ?
Fraud is a crime, its not acceptable under any condition. I hope that you are not involved in any way with transactions of Canadian property.
I think if an underwriter suspects fraud it should be reported to the appropriate broker licensing agency (depending on which province you are in)..I will give the benefit of the doubt here just to play devils advocate to say that perhaps the broker didn’t know, and simply submitted what the client gave them, but in the case where the Agent laughed and hung up, their license should be questioned. I for one am not willing to put my job, reputation or morals on the line for a deal… no matter how much money I stand to make off it. Things like this are always going to happen, that’s why all brokers are not equal and those of us that make an HONEST living will thrive. Karma will work it’s way through.
We had a client send in 2yrs NOAs that had the same deductions but for different income amounts?? We told him we were not interested in working with him….He came by a month later to say he was in his new house…Someone else did the mortgage anyway
Weird. I had the same situation. Was it the same client?? LOL.
It turns my stomach that this sort of thing happens so often. It will continue to happen unless lenders make examples of these idiots.
Here is my question. Why is there no industry blacklist for customers who provide fraudulent documentation?? Lenders could report bad borrowers to other lenders and shut these shenanigans down.
Note to Equifax!!! THAT would be a valuable service.
“industry blacklist for customers who provide fraudulent documentation” = great idea.
Agreed,
Equifax posts on an individuals bureau if they have ever been a target of fraud “confirmed true name fraud”. So it seems like they would have the capability to do so??
I was recently at my companies annual meeting and we had someone from our corporate security speak to us about document fraud among other types… Did you all know there are websites you can go to that sell and create fake paystubs and tax documents!
….”bank insiders claim to “accidentally overlook” or turn a blind eye to doctored job letters, pay stubs, etc.”…
I think this sentence summarizes who is to blame for the prevelance of fraud.
If you walk into a store and the clerk opens the cash register and tells you to take what you want, does that make you a thief??
QUOTE
“Toronto broker said…
….”bank insiders claim to “accidentally overlook” or turn a blind eye to doctored job letters, pay stubs, etc.”…
I think this sentence summarizes who is to blame for the prevelance of fraud.
If you walk into a store and the clerk opens the cash register and tells you to take what you want, does that make you a thief??
UNQUOTE
Yes, it does make you a thief. it’s not yours or the store clerks money and you both know it.
The responsibility lies on both ends.
That said, it wouldn’t always be easy to prove an underwriter knew for sure a document was fraudulant.
REALLY interesting article, Rob. Thanks!
I actually believe that “over-looking-certain-documentation” fraud is rampant among the brokers.
But I hear you. It feels good to be aboveboard/virtuous, but in the end, it’s ALWAYS about the money. I can’t emphasize this enough.
this is not hard: you’re both culpable.
Had my sons friend approach a bank about buying a property for rental with only 5% down, when I told him rentals require 20% he said his bank was aware and was ok. They told him just to say he will live in it. I called the institution as well as CMHC and all I got was if the bank doesn’t complain there is nothing they can do about it. I think the system needs a little work.
Just to let everyone know..you can certainly HELP blacklist customers who you suspect are fraudulent. You will have to contact our mortgage insurers Canada Guaranty, Genworth and CMHC. When these insurer’s receive the client’s application, they will be more diligent in going through their documents. The least you can do is report them and at the end of the day, it is up to them if they want to provide the mortgage or not. oh and you can report it from ‘Mr. Anonymous’
Who decides to convert i year variable rate to 5 year locked in mortgage?
Recently a Mortgage Broker Named Nancy …….. Was let go be her brokerage for having committed fraud and having 50+ Redex on her file! She was a $200 Million Producer.
After couple of weeks she was hired by _______ from Mortgage Alliance. She is currently still with Mortgage Alliance. What does this tell you about our Industry where our _______ hires someone like that?
[Please note: We do not have the means to verify all information posted in the forums. That said, CMT makes an effort when practical to verify facts directly from individuals named in comments. In this case, some of the information in this comment has been disputed and has therefore been edited. CMT]
Stewart Eadie here. I’m hoping that the person that posted as Stewart will identify himself with his last name as this posting and that CMT can confirm who they contacted to verify this posting. To be clear, it was not posted by me and I believe that my many industry friends know that this is not, and never has been, my style. For further clarity, I categorically state that this posting did not come from me.
Stewart, don’t worry, everyone who knows you understands this was not you. The sad part is this was clearly aimed at slandering you. I wish there was a way these Boards could insist on full disclosure of the people who post. Its not Rob’s fault, these Boards are all built the same way but its bad just the same.
Concur, if your Son’s live in the home for 1 day after closing, in the Insurers eyes, it is Owner Occupied. What happens the next day is the owner’s business, as long as the mortgage is paid as agreed, no one will be the wiser. Sad but true.
Hi Stewart,
I’ll take this opportunity to remind everyone that use of a particular first name on a post doesn’t say anything about who that individual actually is.
There is unfortunately no readily available way to verify the ID of people who leave comments. Even if there were, there are privacy rights for individuals who post in forums. Those rights are subject to their posts being true and accurate if challenged, which we made an effort to verify in this case.
Cheers,
Rob
I was astonished when a client phoned me and told me about the following discussion that took place with his lawyer, of all people.
Lawyer tells him, when you come to my office and I ask you “is it your intention to live in the property” and you say “Yes”, then all is good. Now if your intention changes after you leave my office, that’s another story.
I guess the real point is “premeditated or not” because I’m sure that same client could be transferred cross country by his employer, thus turning his residence into a rental.
As a more regular poster to this site, i chose today to not post my name due to privacy reasons. I am a fraud investigator in one of Ontario’s municipal police services. I was intrigued by this article and wanted to briefly comment on someone’s statement regarding Karma and the honest broker. I will tell you that fraud is unlike many crimes due to its profitability level. Most fraudsters, whether they are credit card fraudsters, or mortgage fraudsters have done at least a loose cost/benefit analysis. They stand to make anywhere from hundreds of thousands of dollars a year to millions on a few transactions. They recognise that the paper trail or money trail can lead back to them but they are banking on (excuse the pun) companies not reporting all fraud, prosecutions falling short, or even the police being too busy to even look at the case.
On the rare occasion they are prosecuted to conviction the penalties are not that major. Often they have to pay some of the money back. I’m not kidding, some of the money they stole, not even all of it. If there is jail time it is simply the cost of doing business.
One unfortunate thing is that in some courts within Ontario, the Judges view fraud as a victimless crime. If they do consider the victim it is often the bank and it is hard to shed a tear for a victim that makes 8 figures a year.
I suggest that at each provincial and federal election you ask your MP and MPP what they know about crime and punishment for fraud or any other crime you feel strongly about. My experience is you will find they have no idea how lenient our courts are and they would be shocked to know the truth.
Merry Christmas Everyone.
Anyone ever heard of MF Global? How about the 1.2 Billion dollar Ponzi Scheme involving a large Canadian bank? Banks and their employees always overlook things implicitly or complicity. If you work in the industry you know what I’m talking about. And to those on here that whine and complain about these practices need to wake up and smell the coffee. You would want your broker/banker to overlook anything that was in your favour, but not in the favour of others.
I speak for myself when I say this but I disagree. Recently I kicked a client out of my office who came in with his girlfriend. His girlfriend was going to buy the property they wanted. His girlfriend works for his company. I kicked him out when he said “what do I need to do to show she makes enough money to buy this house”
Said client was reported to CMHC and Genworth anonymously. The only issue with this is that this client had the cash to put 20% down which meant it may not have made it to the insurer if they went somewhere else.
Anyone who looks the other way should be sitting beside the fraudster when any punishment comes down.