It made the public question broker ethics, it made top brass at banks more skeptical about broker-originations and it put brokers under the microscope with regulators.
Fraud from brokers and lender reps, especially the widely publicized variety, is costly in so many ways. It results in
greater default risk for borrowers
higher potential losses for lenders
higher compliance costs for lenders
higher investigation and enforcement costs for regulators, and
damage to the industry’s image, which can result in higher capital costs and tighter lending guidelines
While small relative to the $1.3-trillion-plus mortgage industry, these costs are nonetheless unacceptable.
It is high time to send a message to brokers who take shortcuts. In particular, the industry must call out guys like Rod (Mehrdad) Nevis of Yespros Mortgages Inc.
Nevis is a B.C. broker who apparently wasn’t overly concerned with submitting accurate applications to lenders. The Financial Institutions Commission (FICOM), B.C.’s mortgage regulatory body, found that he acted “in a manner prejudicial to the public interest” by
failing to determine if borrowers had properties other than those disclosed in mortgage applications, even though he knew or “ought to have known” that was the case;
failing to advise lenders that the borrowers were concurrently seeking financing for other properties;
preparing mortgage applications to send to lenders on the basis the properties would be owner occupied, even though he knew or “ought to have known” that was the case; and
Preparing mortgage applications for submission to different lenders over a short period of time for the same borrower, despite unexplained discrepancies concerning residency, rental income and/or ownership of properties
Nevis was fined $10,000 and got a few other slaps on the wrist. But he will still be allowed to operate as a mortgage broker. No doubt, many are asking why.
Sidebar: The above-noted FICOM investigation revolved around applications submitted on behalf of four borrowers. Here’s the full consent order.
To outside observers, repercussions for broker negligence and/or fraud must seem grossly inadequate. Fortunately, lenders are increasingly sensitive to fraud, they cooperate more with other lenders and they’re now quicker to remove questionable brokers from their approved lists.
But we must do more. It’s time to make examples of shady brokers and increase deterrents. Specifically, lenders, regulators, broker associations (and ideally law enforcement) must work together to issue a clear, unified statement of non-tolerance for application misrepresentation. This condemnation should be shouted from every corner of the industry—via regulatory bulletins, via broker network newsletters, in industry publications and so on. Unscrupulous brokers must be made to acknowledge that intentional application omissions are just as fraudulent as application falsities. They must be made to fear being caught and fear exile from the business.
To the small minority of unethical brokers, bank reps and credit union reps out there, know that the industry is fed up with your chicanery. The shortcuts you take hurt public confidence in mortgage advisors and make it more expensive for originators to operate. Leave the mortgage business. Or count on being made to leave.