# Mortgage fraud is skyrocketing in Canada



## andrewf (Mar 1, 2010)

Interesting piece on CMT from a mortgage broker. It seems that mortgage fraud is getting out of control in Canada. It accounts for 2/3rds of $ value financial fraud in Canada as of last year. The police don't care. Underwriters and brokers turn a blind eye. 

http://www.canadianmortgagetrends.c...ting-mortgage-fraud.html#.UkQ_-hV_Huo.twitter


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## fraser (May 15, 2010)

A friend of ours who works in the bank told us that a very big reason for this was that the banks, in an effort to reduce costs, have eliminated many of the background checks that they used to do. Some banks outsource these verifications. 

Many of these frauds are a direct result of the banks doing a very shoddy, quick check on the applicant and not enough verification of the mortgage application data. 

No surprise that someone has spotted the 'hole' and has come up with a scheme to farm it.


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## james4beach (Nov 15, 2012)

There has been a real estate & mortgage mania (I call it bubble) in Canada and whenever you have that kind of mania, elevated fraud accompanies it.

There's probably an institutional element to this too (e.g. REITs and other structures with semi-fraudulent commercial mortgages) but it probably won't show up until real estate slows and the bubble pops. As Buffett says, "Only when the tide goes out do you discover who's been swimming naked."

When there's easy money, it floods around everywhere and everyone is more or less happy.

When the mania subsides, people start asking for their money back and this is when you discover more of the fraud and theft. Think: Madoff. I suspect in the coming years we're going to see lots of problems like this in private REITs, builders, and financing companies that were concentrated in mortgages.


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## HaroldCrump (Jun 10, 2009)

Isn't it true that mortgage fraud peaked in the US just before the big R/E crash?
Mortgage fraud started in the aftermath of the 2002 recession as regulations were reduced and banks became more and more careless, it kept increasing all through the mid 2000s, and peaked in 2007, just before the crash.


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## fraser (May 15, 2010)

There has been lots of it in Calgary. The banks and the legal community have been embarrassed and would prefer that it be hushed up (but repaid just the same). 

A lawyer from Cochrane was just found guilty and sentenced to two years for participation in a mortgage fraud. The Law Society of Alberta has paid a large amount of money back to the banks from it's insurance fund. The banks had the do the work, the RCMP apparently would not.


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## james4beach (Nov 15, 2012)

When I say mortgage and related fraud I mean everything related: asset backed securities, derivatives, etc.

Remember the USA nearly collapsed due to this stuff - CDOs, MBS, crooked ABS, crooked Bank of America paper, crooked Countrywide Financial paper, etc.

I bet Canada has a lot of it too


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> There has been a real estate & mortgage mania (I call it bubble) in Canada and whenever you have that kind of mania, elevated fraud accompanies it ...


True ... but then again - you don't need much of a mania when for some of the RE scams have so little risk and such a huge reward. I recall seeing a US investigation show on TV outlining a scam that could have been stopped by a long enough delay for a simple letter to received by the previous owner. I thought "only in the US" and yet I've seen reports of the same scam here in Canada.

For the condo version - the owners commented that had someone shown up to value the condo or a letter been sent, the fraud would have been detected months earlier.

The sad part IMO is that the fraudster was able to steal the property in a week or so while the original owner usually takes two years to regain title.


Cheers


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## sags (May 15, 2010)

There was some news awhile back, that the banks use automated "appraisals", which is a software program that compares other home values in the area to achieve a "value".

They never look at the house..........so it was possible to buy a run down shack in a million dollar neighborhood and get a huge mortgage on it. 

This practice alone didn't create the frauds.............just helped pave the way for crooked mortgage brokers and lawyers.


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## andrewf (Mar 1, 2010)

They also routinely (as in, on a high % of apps) lie about square footage. No one verifies...


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## HaroldCrump (Jun 10, 2009)

sags said:


> There was some news awhile back, that the banks use automated "appraisals", which is a software program that compares other home values in the area to achieve a "value".
> They never look at the house..........


Yes, sags, and that "software" is provided by none other than CMHC.
It is called the GVS, and most large mortgage lenders are directly integrated with this system.

Mortgage is originated > the mortgagor details are entered > the basic property information is entered > click on a button > out pops the value guaranteed by the CMHC.
That's it...the lender can now wash their hands off the transaction.
The mortgage itself will, of course, be sliced and packaged off as a MBS security and many derivatives based on that.

The underlying data CMHC uses is based on MLS of course (I think it is called EMLY) - they are all in.


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## Eclectic12 (Oct 20, 2010)

sags said:


> There was some news awhile back, that the banks use automated "appraisals", which is a software program that compares other home values in the area to achieve a "value".
> 
> They never look at the house..........so it was possible to buy a run down shack in a million dollar neighborhood and get a huge mortgage on it ...


For the frauds I'm talking about ... you don't buy anything ... you just register the sale and once the bogus sale has been duly registered, you cash in.


Cheers


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## Rusty O'Toole (Feb 1, 2012)

A mortgage fraudster gets caught

http://www.cbc.ca/news/canada/montreal/montreal-man-charged-in-5m-mortgage-fraud-1.960247


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## Just a Guy (Mar 27, 2012)

With CMHC insuring the mortgages, what ins entice is there for the lenders to do proper due diligence?

The lenders are making upwards of 40% or more on mortgages even at these low rates (bank loans are leveraged too). There's just too much money involved and little risk (even if it's not insured, it just means lower taxes).


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## Eclectic12 (Oct 20, 2010)

Just a Guy said:


> With CMHC insuring the mortgages, what ins entice is there for the lenders to do proper due diligence? ...


I guess the question in my mind is whether a letter to previous owner on file and a bit of a delay is all that expensive compared whatever steps are needed to try to get something out of the fraud?

I'm sure due diligence to be iron clad protected is expensive but there would seem to be a middle ground that would avoid problems.

Cheers


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## andrewf (Mar 1, 2010)

Rusty, all these stories involve the perpetrator of the fraud involving third parties in the fraud (to borrow their identity, say). These are the only fraud charges I've seen reported. The bulk of the fraud does not involve third parties, and is merely a matter of the perpetrator misrepresenting their income or assets, possibly by forging documents, or the mortgage broker misrepresenting the property by 'massaging' the inputs to CMHCs appraisal engine. The police seem to have decided that these are innocuous acts not worthy of or justifying investigation or enforcement. We'll see what people think if the market corrects and CMHC is on the hook for mortgages originated fraudulently.


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## fraser (May 15, 2010)

In some areas the RCMP are refusing to investigate fraud. Partly because they do not have the manpower and partly because they do not have enough qualified manpower in the form of qualified forensic accountants. It takes them much longer, and consumes a great deal more manpower simply because they lack the right skills and the quantity of those skills.

In the recent case of the mortgage fraud in Calgary, my understanding is that the RCMP refused to investigate. The bank hired their own investigators, proved the case, and then went to the Crown Prosecutor. There have been a number of ponzi schemes where the police have refused to act. The only recourse for those folks has been civil action and by the time this happens the money has long gone. Sad but true. 

So the learning from this is don't rob a convenience store for $300. You will get hunted down and jailed. It is far better to do a white collar crime-go big or go home. Your chances of getting caught, prosecuted, and doing jail time is far less and you can walk with millions instead of a few hundred. Never mind about all of those folks who have been cheated out out of their life savings..they will understand. It is just one more reason why the RCMP have such a tarnished reputation in Western Canada.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> Rusty, all these stories involve the perpetrator of the fraud involving third parties in the fraud (to borrow their identity, say). These are the only fraud charges I've seen reported ...


Odd ... I've seen title fraud reported regularly.

http://www.cbc.ca/news/canada/british-columbia/b-c-man-victim-of-title-fraud-1.724471
http://www.theglobeandmail.com/glob...d-how-to-avoid-them/article13108985/?page=all
http://www.cisc.gc.ca/products_services/mortgage_fraud/mortgage_fraud2_e.html

Unfortunately, I didn't keep the link to the site that talked about frequency and recent incidents. I do recall a condo title fraud article from Toronto from about two years ago.


Cheers


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## fatcat (Nov 11, 2009)

fraser said:


> So the learning from this is don't rob a convenience store for $300. You will get hunted down and jailed. It is far better to do a white collar crime-go big or go home. Your chances of getting caught, prosecuted, and doing jail time is far less and you can walk with millions instead of a few hundred. Never mind about all of those folks who have been cheated out out of their life savings..they will understand. It is just one more reason why the RCMP have such a tarnished reputation in Western Canada.


+1 from ... one of my family members was swindled and the guy is probably going to walk .... 

the handling of financial crimes by the crown and the courts in canada is a disgrace ...


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## andrewf (Mar 1, 2010)

Title fraud is fraud perpetrated on a third party (the genuine owner of the property in question). I don't think this is treated as 'soft fraud'. 'Soft fraud' includes providing false info or forged documents to qualify for a loan one is not otherwise eligible for (very common). This is called fraud for shelter.



> Fraud for Shelter
> 
> In contrast to fraud-for-profit schemes, fraud for shelter typically involves individual borrowers who often intend to live in the property as law-abiding home owners. These individuals falsify their personal or financial information in order to obtain a larger mortgage than their income can support. As these individuals are already financially stretched to cover a larger mortgage than they can afford, they are particularly vulnerable to any changes in their financial situation. *CISC Central Bureau focuses on fraud for shelter only when organized fraudsters target individuals struggling to make their mortgage payments and exploit them in foreclosure-fraud schemes*.


They explicitly ignore this kind of fraud as if it were not 'real' fraud.


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## Rusty O'Toole (Feb 1, 2012)

I know it is not uncommon for people to overstate their income or do other things that are technically fraud. But if that is all the bank had on you I don't see how they could make it stick. Assuming you kept up your payments, insured the property, paid taxes and otherwise lived up to your agreement. If there is no loss where is the crime?

What is more under the personal covenant if you default they not only get to sell the property they can come after you for any shortfall. So once again, where is the loss?


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## andrewf (Mar 1, 2010)

That's like saying if you fire a gun into a crowd and don't hit anybody, where's the crime?

Fraud for shelter becomes a big deal when all these people who can't really afford their loans stop paying them and CMHC/bank are on the hook for their fraudulent obtained loan. Recourse loans are a bit of a red herring. People generally pay the mortgage before they pay other debts. When someone stops paying their mortgage, it usually means they are flat broke, and have no assets to be gone after.


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