Mortgage fraud and real estate fraud can cost mortgage lenders big. And it’s not only lenders who can be affected — a fraudulent mortgage application can cost real estate partners, the people being defrauded, and even the entire country.
A January 2018 report from Equifax Canada suggested that mortgage fraud has gone up 53% since 2013. Data from The Chronicle Herald says that property title fraud on its own costs Canadians $300 million annually.
But while some real estate fraud is caused by scammers and people with a less-than-scrupulous agenda, there are more innocent omissions that can still be deemed fraudulent. For instance, client omissions.
According to a January 2017 report from Equifax Canada:
- 13% of Canadians indicated they felt it was okay to tell ‘a little white lie’ when applying for a mortgage to get the house they want.
- 16% said they believe mortgage fraud is a victimless crime.
- 8% admitted to misrepresenting the facts on a credit or loan application.
It could be something small, such as saying they work 40 hours per week when they really work 30. Or saying they have an extra $8,000 in savings, or they don’t disclose an existing debt. These might be ‘little white lies’ or they could be completely innocent. For example, a client may forget that they had their parents sign on the property title, or not realize that a certain non-housing related debt needs to be declared. But either way, this could still technically be considered mortgage fraud.
The results are the same, too, whether it’s intentional or innocent: more stringent lending guidelines and higher rates as a result of increased operational costs. This may be a trickle-down effect where it seems like one innocent omission doesn’t mean much, but over time it builds up to become a much bigger problem.
So, what can you do? Mitigating fraud means it’s more important than ever for mortgage lenders and brokers to have a good due diligence process in place.
Make sure the following is in place:
- Ask lots of questions about income when you take the mortgage application, especially if the applicant is self-employed.
- Ask if the applicant receives a computerized paystub with tax deductions. You can also ask for tax assessments and bank statements.
- If they can’t provide these documents, you can call their employer to confirm employment.
- If you suspect a fraudulent paystub, or something seems fishy about the employer, ask for their CRA Notice of Assessment from the previous tax year and match the information.
- Validate the property value with an automated valuation model (AVM) before getting a full appraisal.
- Independently verify property ownership and confirm all owners on title with a property database.
- Look for any liens on an existing property using mortgage technology.
- If there are any discrepancies that come up, ask your client. This is one case where it’s best not to make any assumptions.
Your Purview report is a great source to independently verify property information. With the report, you can see property ownership information, sales history, an AVM, liens, and more.
An omission may be innocent, but the consequences might not be. Make sure you’re doing your due diligence at the mortgage application stage. This process will make your clients and any real estate partners trust you that much more.
Access your Purview report and mitigiate fraud today. Call 1.855.787.8439.