Sunday, July 29, 2007

Mortgage Fraud: it's on the rise

According to the Canadian Association of Accredited Mortgage Professionals mortgage fraud is a growing problem. This article on the CBC website points out some of the highlights of what could well play significantly into any repeat of the sub-prime lending woes of our southern neighbours up here in the land of endless prosperity.

Some notable quotes:
The mortgage industry in Canada has undergone dramatic changes over the last several years.

As more lenders and mortgage products come on the market, competition for business increases, resulting in increased approval rates and reduced application processing time... [creating] more opportunities for various types of real estate fraud involving titles and mortgages.

The average case of real estate fraud in Canada is now about $300,000.

In 2005, real estate title fraud claims accounted for 33 per cent of the total dollars paid in claims at title insurance company, First Canadian Title, up from six per cent in 2000.
So just what exactly is mortgage fraud? While it includes the obvious fraudulently obtained mortgages had through identity theft, it also includes many other less, how shall we say this?, socially frowned upon actions:

Mortgage fraud is the material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or issue a mortgage loan.

Mortgage fraud occurs in a broad range of activities related to property, employment, identification, equity and title. These include such activities as inflating or deflating appraisals and valuations of property, misrepresentation of property characteristics such as forged or altered MLS (Multiple Listing Service) listings, and misrepresenting commercial property as residential or the number of units in the property.

Fraud can also be perpetrated through false information provided on loan applications and employment and financial statements, and by falsified or misrepresented down payments, by taking loaned money and using it for different purposes, withdrawing money before closing, the fraudulent transfer of title and mortgage disclosure, and when a property is not held in the name of the seller. (emphasis mine)

In a five year period (roughly equal to the current bull market in RE) one Canadian insurance company has experienced over 500% jump in fraud-related claims. Wow. And this for a problem that no one wants to talk about, according to CTV:
It's a crime-wave sweeping the country, and it's a problem no one wants to talk about – not the banks, not the government, not even the victims.
So who's looking out for who regarding this? Seems like the banks are starting to look out for themselves: Ms. HHV informs me that more than ever, her bank is requiring appraisals on mortgages in this town. Of course, that could mean they don't have the same confidence in a continued rising market here anymore.

More mortgage fraud info can be found here.

Worst case scenario:


Anonymous said...

Ms HHV is quite correct in that more appraisals will become the norm. For the last seven years, lenders and brokers have been using automated valuation systems which do not requre someone to physically go through the property or meet the home owner or vendor. If an appraisal was required in the case of the video that was shown, the scam would have been found out immediately and the cops called in. Immagine an appraiser showing up at your door and telling you that "Bob's Bank" is placing a mortgage against your property for the purchasers! And you don't have your home up for sale?

The use of these automated systems is one of the major differences between this market and markets in the past. These systems provide fast fast fast credit for purchasers with very little documentation and with less due diligence from the lenders. The systems are easily manipulated to get instant mortgage approvals. And the brokers are inputting the data. Talk about the fox guarding the hen house! So when your wondering how that person making $15 bucks an hour outbid you on the house that you wanted, think "creative financing" and fast approval with little documentation and no one checking the information as being accurate.


vg said...

intersting stuff the past few days HHV,been cruising the Seattle and Okanogan areas the past week and has been hard to fathom how Victoria can be comparable to Seattle in price. Seattle is a very happening city,been a long time since I was there and I was very impressed with the changes and can see why they have a real estate boom though the signs are there that things are slowing this past month. Seattle has world class stuff to warrant the high prices and personally i think puts Vancouver to shame as far as a world class cities go.

To get back to the thread topic I am suspecting that there is some fraud happening when these young couples borrow with mininum downpayment but are carrying some substantial debt. The shady part I am suspecting is the lender (not a bank) does the quick paper flip. Even with a 5-10% down payment the income level does not qualify with the debt caue of the low income,so they take the down payment to pay the debt so they qualify but the debt is actually paid with mortgage money. Sounds complicated but this way there is no debt showing yet there is a down payment at the same time on paper. I only think this theory cause I cant figure out how two people making $15-17 combined average wage per hour can qualify for a few hundred grand yet a few short years ago my spouse and I could not qualify in a similar situtation with a better down payment with good is most baffling and can only be a sign this show is just about over.

One other thing HHV, I am thinking this suprising rise in sales are the ones who were scared into buying with the reality of rising rates and being told prices will rise with the rates which is total bullshit,they will drop,just give it a couple months for all those pre-approvals from the last few months to expire.