Lenders applaud when they see stories like this.

Jail time is an important deterrent to one of the most widespread and underreported problems in mortgage lending: document fraud.

Three years of incarceration is what William Priest-Phillips has to look forward to after pleading guilty to one count of fraud over $5,000 and one count of uttering forged documents.

The charges are in connection with his submission of “several mortgage applications containing falsified documents to Scotiabank.”

Priest-Phillips, a 49-year-old former Dominion Lending Centre broker in Nackawic, N.B., “plead guilty right away,” says investigator Andrea Grasman from the RCMP’s Commercial Crime Section. As such, details of the fraud were not laid out in court.

In essence, Grasman says, “Priest-phillips was submitting fraudulent documents to boost the clients’ chances of approval.”

Lest you think this kind of thing is rare, it’s not. “More than a few percent of applications involve documents that have been altered in some way,” says one credit risk manager we spoke with at a major bank. (He didn’t want to be identified as few banks like to talk about this kind of thing.)

Document fraud is typically not reported. “There is no way any bank is going to say we got something by fraudulent documentation,” he says. “No one wants to admit their underwriters are incompetent.”

Underwriters and document processors are the first line of defence and it’s the inexperienced ones that have the highest rate of overlooked fraud.

“It’s often a lack of common sense,” he adds. Young underwriters have a higher probability of looking at documentation and missing subtle grammatical errors, cut-and-paste logos, made-up business addresses and so on.

In certain cases, underwriters rely too heavily on automated systems. Occasionally they fail to verify even basic information like purported company addresses and property tax amounts.

To be fair, however, most underwriters are highly skilled and professional. And most are under tremendous pressure these days to provide branches, mortgage specialists and/or brokers with fast approval turnarounds. That doesn’t help matters from a fraud perspective.

As for Priest-Phillips, a Dominion Lending Centres spokesperson provided this statement:

“Dominion Lending Centres Inc. and all of its independently owned and operated franchises across Canada wish to state that William Priest has no association, direct or indirect with Dominion Lending Centres.

Dominion Lending Centres severed all ties with William Priest and company once we were notified of the allegations against him and the impending investigations against him and his companies. Dominion Lending Centres officially terminated William Priest on April 19th, 2012.

DLC actively cooperates and supports the efforts of our regulators, policymakers and government enforcement agencies, will act swiftly to terminate all offending parties and supports maximum penalties.”

The fact is, this type of thing could have happened at any number of lenders or brokerages across the country, and it too often does.

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Rob McLister, CMT