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mortgage fraud

Combatting Mortgage Fraud: Scrap The Status Quo

Canada’s conservative nature means that we have a tendency to abide by the status quo, remaining committed to tradition and the processes that have historically worked in our favour.

Fortunately this approach has, in many ways, proven valuable, cushioning us from the damaging effects of various economic downfalls, including the financial crisis of 2008. But with mortgage fraud in Canada up by roughly 52%, there’s reason to believe that the status quo is no longer good enough.

mortgage fraudOver the years, Canada’s mortgage application and approval processes have only become trickier for Canadians to navigateespecially with the introduction of various regulations and policy changes intended to provide prospective homebuyers with greater protection.

Rather than enhance or streamline the experience, these changes have only made it more complicated for brokers and their borrowers. Meanwhile, we are just as susceptible to fraudulent activity as we would have been 20 years ago.

Unfortunately, Canada’s mortgage origination process itself makes it easy for fraudsters to cheat the system, right from the get-go. Aside from credit and appraisal, the underwriting process is heavily reliant on borrower-provided documents and information, making it an optimal entry point for fraudsters. As I see it, therein lies the issuewhy put the onus on the borrower to provide information when it can be obtained directly from the source? Amending this process would not only reduce the likelihoodand opportunityfor fraud, but also improve the origination experience for brokers and borrowers alike.

Compared with the UK and U.S., where such systems have been in place for years, Canada is lagging behind, adding more inefficiency to the process and putting us at greater risk. The frustrating part is that the technology does exist in Canada.

Third-party applications like Flinks, Finicity and others make it possible to obtain information pertinent to income, down payment and funds for closing costs directly from consumers’ bank account data. The technology just hasn’t been made available to the mortgage industry yet.

mortgage fraudA push for similar preventative (and more efficient) data from the Canada Revenue Agency (CRA) has already been initiated by the CMHC, urging them to take a more direct role in income verification. This would include providing direct access to a borrowers’ Notice of Assessment, with consent from the borrower.

Despite increasing requests by Canadians to improve the process, little news or public progress has actually materialized. This is why I am speaking up. We need to take action now: the CRA needs to formalize a program to access income data, and the CMHC needs to provide guidance on the process by which alternative data can be utilized by lenders while underwriting.

We cannot champion ourselves as international banking leaders if we are willing to fall so far behind in these areas. As it stands, industry regulators do not have sufficient resources to combat mortgage fraud effectively further proven by recent events like the unregistered B.C. mortgage broker who brokered over $511 million of mortgages using falsified documents.

What regulators need in order to be more effective is additional support in the fight against fraud. In particular, an amendment to the overall mortgage lending process, which only then will empower lenders to continue conducting business as usual, with fewer unexpected interferences.

If we truly care about mortgage fraud, the integrity of the system and consumer experience, the answers are there. We just need to make it happen.